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Antonio Coviello
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 8.2 The Risk Management System in the
Passenger Shipping Companies

Antonio Coviello
Institute for Service Industry Research (IRAT), National Research Council (CNR),
Naples, Italy
“Parthenope”
University of Naples a.coviello@irat.cnr.it

Abstract
The aim of this paper is to analyse the measures aimed at protecting firms, specifically
the Risk Management techniques, viewed as an innovative example of risk management
including both prevention and insurance coverage.
Protection of firms is a field in which managerial innovations are urgently required
because of different reasons: likely enough, from the theoretical and practical point of
view management of malicious or accidental events is the least advanced area among
the different areas of the overall management of an organisation. The need for urgent
measures in this field is the result of a higher social awareness of the importance of
safety, of the trend of law-makers to regulate dangerous activities and protect individuals
exposed to risk, of the evolution of technologies that are becoming increasingly complex
and dangerous. Malicious and accidental events imply substantial costs that in the
most severe cases can even exceed the company’s financial capability. An accurate
management of these events can then be a valuable source of saving.
However there is no doubt that the risk management practice, basically meant as
management of the firm’s mere risks, is scarcely known and implemented in Italy. This
low level of attention paid to risk management and governance seems to be due to the
Italian managers’ trend to underestimate or ignore any risks of harmful events and to
their incapability of developing a safety-oriented behaviour (more frequently recorded
in other countries), through the implementation of risk protection and prevention
policies.
This low level of propensity to manage and govern mere risks is also due to a specific
firm-insurance company relationship characterised by both co-operation and conflicts:
nowadays firms do not want “traditional” insurance policies only; they require a range
of quality innovative insurance-financial products and above all advisory and a wide
International Association range of services. The insurance company (a component of the operational structure
of Maritime Economists
and, then, a sub-system of the financial system), demands instead information and data
on the actual economic and financial position (then on the actual needs) of the enterprise
to be insured.
In its conclusion this paper illustrates the “case history” of “Pride of America”, a
luxury cruiser that in 2004 was the subject of a major accident insurance.
Association for Tourism
and Leisure Education

481
 The Risk Management
System in the Passenger
1. Traditional risk management and relevant evolved typologies
Shipping Companies
Innovation has always been the main development driver for individual firms
and the production system as a whole. It does not exclusively involve technology
and creation of new products and processes. Along with technological innovation
we also have managerial innovations, namely identification of new techniques
for resource management, labour organization, operation planning, decision-
making. Managerial and technological innovation may be aimed at cost saving1,
turn-over increase, quality improvement 2 (also in the areas that can be hardly
quantified), business management.
In its evolved typologies Risk Management is an example of managerial innovation
aimed at managing wilful and accidental adverse events, also called business
protection. These adverse events may include fire and computer crime, theft
and brand counterfeiting, attacks and industrial injury, all of them causing
damage to the organisation’s tangible and intangible assets and to its human
capital. Business protection is a field urgently requiring managerial innovation
due to the following reasons:
1) management of wilful and accidental events likely is – both in the practice
and in the corpus of business knowledge – the less advanced area amongst
the different areas of the general business management. Compared to well-
established functions such as marketing, finance, administration, many
deficiencies can be found in decision-making methodologies, tool refinement,
activity planning, evaluation of results and, in general, in the proper
management of a business problem;
2) wilful and accidental events increasingly tend to worsen. This phenomenon
does not involve all typologies of risks but is particularly evident with
respect to environmental risks and those associated with liability for product
malfunctioning. This worsening is due to: a higher social awareness of safety
issues; the law-makers’ tendency to regulate hazardous activities; protection
of individuals exposed to risk; evolution of technology towards forms
characterised by a higher level of complexity and dangerousness;
3) wilful and accidental events involve high costs that, in the most severe
cases, cannot be afforded by the firm. A careful management of these events
can then be a valuable source of saving.

There is an increasing need to rationalise and up-date business protection

techniques. Amongst the innovations aimed at meeting this need Risk Management
is the one that can be better applied to any typology of risk. Actually, while
allowing for the management specificities of each class of wilful and accidental
risks, Risk Management is based upon a more general approach.

1 Antonelli V. (1997), Il costo delle strategie, aspetti evolutivi della gestione e determinazioni quantitative,
work quoted.
Antonio Coviello 2 Refer to. Proto M., Il sistema qualità. Profili tecnici e percorsi evolutivi, 1999, work quoted.

482
 To some extent Risk Management is a new managerial approach including each
individual action aimed at protecting the organisation; it combines different
approaches, risk management tools, expertises that, so far, have been
characterised by fragmentation and lack of interconnection. It seems that risks
can be systematically found at any level of the business functions (something
that cannot be ascribed to the latest theoretical developments).
The traditional elements of Risk Management include:
• A) Structuring of risk management activities, according to a sequence-based
“Parthenope”
University of Naples model where final decisions are supported by a preliminary identification
of the individual and potential risk. The model includes three fundamental
phases:
1) risk identification, aimed at implementing a regular and constant monitoring
of the possible threats;
2) risk evaluation, namely the translation of threats in quantitative terms, in
particular by determining the likeliness of the event occurrence and the
potential seriousness of the damage;
3) risk treatment, within which the most suitable actions are decided and
implemented in order to reduce risks and bring them at a level viewed
as convenient vis-à-vis the firm’s targets;
Linking risk treatment to a preliminary data gathering and processing means
getting rid of empirical decision-making approaches based on approximations
and intuition-based judgements that do not allow for the firm’s overall cost
effectiveness. Additionally, the identification and evaluation phases enable
to enhance prediction abilities as to possible adverse events, above all if
they are new events or events that do not occur on a regular basis.
• B) High integration amongst the different risk management tools. Business
protection is characterised by a high heterogeneity of the issues covered
and by substantial differences amongst the action tools used. Insurance on
the one hand, and technical solutions to prevent threats on the other hand,
are two separate worlds with different counterparts, expertises and
philosophies.
• C) Extension of the range of tools, trespassing into the field of flow management
financial techniques. The basic principle is the attempt to reproduce a number
of aspects typical of the risk portfolio of the insurance companies. The basic
advantage is a higher flexibility and freedom when deciding which business
protection traditional tools have to be used.
• D) Shifting decision-making methodologies toward a financial approach; in line
International Association
of Maritime Economists with what is already done when assessing any business investment. A
harmful event is basically viewed as the source of a negative monetary flow
and Risk Management actions as tools to reduce these flows.
• E) Searching for the maximum possible integration between the management of
wilful and accidental events and the overall business management. Business
protection suffers from a sort of a particularly harmful organisational
Association for Tourism
and Leisure Education isolation; the managers entrusted with this area should instead constantly

483
 The Risk Management interact with the managers from all functions. As each function is exposed
System in the Passenger
Shipping Companies to specific risks, managers should contribute to identifying and preventing
potential threats.

Risk Management is based on the creation of links between firm protection and
firm management, with a specific focus on the development of suitable
communication tools and the assignment of a specific position to the person
charged with risk management (a position equal to the one held by the various
functional managers).
However presenting Risk Management as a managerial innovation is in conflict
with the fact that the most advanced nations have adopted this technique many
years ago (in particular Great Britain and U.S.A). Risk Management is one of
the most common managerial techniques used in many no-profit organisations
as well.
Traditionally Risk Management is confined to the so called pure risks, namely
those risks that only take the possibility of loss into accounts. The general aim
of the risk management sub-system is then to guarantee protection against
unfavourable events and their effects 3.
Given for granted that Risk Management is closely linked to the firm’s size 4,
what mostly differs real Risk Management from an insurance-type risk
management is the assignment of competences both in the prevention and
insurance fields 5.
In the case of risk insurance management, a distinction must be made between
two different situations: 1) the relationship with the insurances is managed
accurately, following modern procedures and with suitable resources; 2) the
firm confines itself to a mere operational management of policies and accidents.

2. Resources available and relationship with the insurance company

It is worth highlighting the low level of dissemination of the Risk Management
function in Italy. The typology and quality of the operations carried out, the
tasks and objectives assigned and the resources available depend on the
deficiency of human and financial resources. Additionally, objectives and Risk
Management concept evolve more rapidly than resources, thus generating a
deeper discrepancy just in the most developed firms where risk managers perform
their function.
It is worth mentioning another crucial element of analysis: the variability of
resources in the event of a crisis. Actually when a firm experiences a period of
sales reduction, some of the measures required to maintain management cost
effectiveness are: rationalisation of the activities and reduction of unproductive
3 Refer to Borghesi A., La gestione dei rischi di azienda, 1985, work quoted.
4 Marino V., Le condizioni di sopravvivenza dell'impresa minore, Cedam, 1999.
Antonio Coviello
5 Refer to. Coviello A. Imprese ad assicurazioni : il risk manager , Dossier n.128, Rome, 1999.

484
 expenses. Expense reductions usually involve those related to Risk Management,
although this function is allocated a lower level of resources than other areas
equally subject to expense cuts. The objection might be raised that Risk
Management is a function that might generate revenues or non-losses (e.g. the
economic damages avoided by the firm thanks to accident prevention). However
the business practice is resolutely in favour of the Expense Centre approach 6.
It is usually maintained that the development of Risk Management is closely
linked to the evolution of the firm-insurance company relationship. In the
“Parthenope”
University of Naples United States the acceleration in Risk Management growth coincided – as from
the 80’s – with a particularly unfavourable economic trend of the insurance
market, also characterised by difficulties in obtaining risk coverage for a number
of risk categories.
According to many authors, the practice of the Italian insurance market
unfortunately reflects this model that does not favour the dissemination of Risk
Management and justifying the firms’ management deficiencies with the behaviour
of the insurance companies is not sufficient.
In general it can be maintained that Risk Management tends to develop above
all because insurance companies are quite demanding as to safety measures,
are unwilling to cover any typology of risk and extremely accurate in searching
a cost-effective technical management 7. The characteristics of the relationship
with the insurance company have to be analysed regardless of the coverage
problem. The insurance policy can be supplemented with a number of ancillary
services that the firm might require from the insurance company (considering
its competence in this field) 8.
The risk analysis is the whole set of operations and methodologies used to
identify and assess mere risks. The threats the company assets are exposed to
cannot be easily identified as they are usually “hidden” behind apparently
normal and safe situations. The risk analysis includes collection and processing
of data to improve risk knowledge, increase the level of accuracy of the measures
and refine the quality of the decision-making processes; identification is instead
aimed at analysing which are the potential threats the firm is exposed to,
describing their source and potential effects; assessment defines, whenever
possible, the extent of the risk through a quantitative measure (maximum
possible loss, mean possible loss, etc.)
Both stages of the risk analysis are necessary, although the former is more
widespread and the latter is sometimes viewed as a scarcely useful additional
analysis. Risk assessment is usually referred to the insurance company that,
International Association
of Maritime Economists on its turn, often does not carry out detailed analyses but just applies a number
of standard parameters to quantify the threat 9.
6 Cerbioni F. (1998), L'impiego del budget in contesti dinamici. Tecniche manageriali per il controllo
della gestione, edition Il Borghetto, Pisa.
7 Refer to Coviello A., Imprese ed assicurazioni: il risk manager, Dossier n.128, Rome, 1999.
8 Coviello A., Così cambiano le assicurazioni, Il Denaro n.30, 1998.
Association for Tourism 9 Refer to Coviello A., Così il Risk Manager aiuta l’impresa, Il Denaro n.41, 1998.
and Leisure Education

485
 The Risk Management There are different effects resulting from an insufficient risk analysis:
System in the Passenger
Shipping Companies • Lack of preparation of the firm in front of concrete threats that were not
identified or underestimated;
• Misallocation of the resources to various insurance policies and other items,
related to different typologies of threat, with excess expenditures for not
severe risks and lack of expenditures for really dangerous risks;
• impossibility, due to the lack of reliable data, to use cost-effective decision-
making methodologies.

In general, the dissemination of rigorous approaches to risk analysis has to be

viewed as a crucial component to assess the practice of mere risk management.
Modern firms consider the quantity and quality of data as a key for efficiency
and competitive success. Risk Management cannot be included in the crucial
management areas without having a reliable information system basically
including news and data on risks 10.
It is difficult to make empirical and theoretical generalisations with respect to
risk prevention. The physical protection of the firm’s resources against malicious
or accidental threats is an idea that – under unitary concepts – actually hides
a large fragmentation of the problems. For example, protection of information
systems and repression of brand counterfeiting have very little in common
(different expertise required, different operational tools, management principles,
reference actors). Such a heterogeneity requires independent organisational
solutions that prevent from identifying within the firm an area responsible for
managing risk prevention as a whole 11.

3. Integration between insurance and prevention

One of the Risk Management key principles provides for a unitary management
of physical safety and insurance.
These two tools can be either complementary or replaceable. While the
complementarity relationship between prevention and insurance is quite
obvious (provided the company has accurately analysed the quality of the risk
covered and adjusted the premiums consistently), the replaceability relashionship
is not always fully understood 12.
Risk retention is a solution that can be adopted when the risk can be taken on
using the firm’s regular financial resources. It is well-known that, if we consider
the resulting positive and negative financial flows, in the long term insurance

10 For a detailed analysis refer to G.P., Risk Management strumenti e politiche per la gestione dei rischi
puri dell’impresa, work quoted.
11 For further details refer to Dickson G.C.A., Education in Risk Management, The Geneva Papers,
1992.
12 Refer to Carniol F. , Risk Management. Strumenti e politiche per la gestione dei rischi puri d'impresa,
Antonio Coviello Cerap, Egea, Milan, 1996.

486
 is never convenient from the economic point of view. Actually if the premium
paid by the clients is higher (wrong assessment made by the insurer excepted)
than the expected average loss linked to the risk taken on without adversely
affecting the firm’s financial balance, retention might be an interesting and
favourable solution 13.
Without dwelling on a “financial-term” of Risk Management, there is no doubt
that retention – vis-à-vis prevention and insurance – constitutes a third element
the management of mere risks has to pay the due attention to. An advanced
“Parthenope”
University of Naples and modern Risk Management implies that risk managers have to devote part of
their time to the financial planning of the interventions to be implemented in
close co-operation with the Financial Managers.

4. Decision-making methodologies
Decision-making methodologies are the whole set of approaches, techniques
and rules used to choose the most suitable option allowing for the objectives
to be pursued.
All problems admit at least two options as we have to decide whether we want
to do something or not.
Within a firm decision-making methodologies must have an economic feature,
as the objectives to be achieved are economic objectives. This means that, in
principle, any decision problem must be addressed by comparing the costs and
revenues associated with the options available. Of course this approach does
not include the cases in which a behaviour is compulsory or justified by strategic
considerations that do not allow for an economic quantification.
In the Risk Management field decision-making methodologies are affected by
the high level of uncertainty of mere risks. To make proper decisions from the
economic point of view, we should know in detail which is the loss that a given
risk would generate in a given period; however, clearly enough, this information
might be acquired only if the risk would be certain, i.e. if the risk would not
be a risk any longer.
Consequently in Risk Management less rigorous decision-making methods must
be adopted, resorting to personal experience and empirical rules. This does not
mean that we have to exclude the economic calculation that can be made based
on uncertain although quite reliable data, provided that an accurate identification
and assessment work is carried out so as to get reliable data on many risks,
International Association above all on those the occurrence of which is not very infrequent 14.
of Maritime Economists

13 For a detailed analysis refer to Forestieri G., Risk Management: strumenti e politiche per la gestione
dei rischi puri dell’impresa, work quoted.
14 Space- centro europeo per gli studi sulla protezione aziendale, Indagine generale sul Risk
Association for Tourism
and Leisure Education Management, 1994, work quoted.

487
 The Risk Management Brokers and insurers are a crucial reference parameter in the decisions to be
System in the Passenger
Shipping Companies made 15; sometimes law provisions, broker’s or insurer’s opinions are accepted
in a passive way. In highly decentralised firms with long hierarchical scales,
top management directly intervenes only on crucial matters; therefore its
involvement in Risk Management has to be interpreted as a sign of interest in
the mere risk problems. Vice-versa, in centralised firms with short hierarchical
scales, top management, that often coincides with ownership, tends to participate
in any decisions and the not infrequent direct management of mere risks, meant
as a mere purchase of insurance polices, has to be viewed as an indicator of a
lack of Risk Management 16.

5. Risk manager’s function

The professional figure of risk manager, mostly developed in the English-
speaking world (in the United States in particular) originates from the insurance
manager professional figure, namely of the insurance manager who, following
the development of the risk management process, has progressively widened
his/her tasks. Risk managers do not merely manage insurance policies or
relationships with the insurance companies; they are a complex professional
figure charged with the management (broadly meant) of the mere risks of the
firm, both of those that can be insured and those that cannot be insured 17.
Thanks to the in-firm risk manager it is possible to decide on the purchase of an
insurance product also resorting to the advice of an external expert (such as a
broker or other professional figure); however as having this function within
the firm prevents out-sourcing of the decision-making process, the assessment
of the options available is made in the exclusive interest of the firm and of the
insurance companies as well; in fact in this way they are able to provide a
quality, customised insurance service that meets the real needs of the client/user
and they can benefit of the work performed by the risk manager 18. “Being a
Risk manager is something more than being an adviser on risk management or
a co-ordinator of this function. Risk managers’ work is a cross-disciplinary
work. They act as liàson officers, have to develop a link with the other functions
of the firm, such as plant managers, shop technicians, engineers, designers,
procurement department, distribution managers, shipment, packaging, sale
managers etc. to make clear to everybody that risk management lies within the
responsibility of everybody. Risk managers can only support top management
in identifying risks. After identifying the problem, the support of the other

15 Refer to Coviello A.-Pellicano M., La gestione del marketing nelle imprese assicuratrici – Cedam,
Padova, 1999.
16 Tagliavini P. - Misani N., Indagine generale sul risk management in Italia., 1999, work quoted.
17 Forestieri G., Il risk management: strumenti e politiche per la gestione dei rischi puri dell’impresa,
Cerap, Egea, Milan, 1996.
Antonio Coviello
18 Refer to Coviello A., Così il risk manager aiuta l'impresa - Il Denaro n.41, 1998.

488
 functions is required to address it. As time go by a new frame of mind will
develop within the whole organisation and all functions will pay attention to
risk and, consequently to its assessment and monitoring” 19.
However risk managers should not be competent in the various organisational
functions to be able to detect all potential risks, they should rather be those
who, on the one hand, raise the various function or department managers’
awareness of the importance of an optimal risk management providing them
with the necessary tools and, on the other hand, are those to whom all data 20
“Parthenope”
University of Naples useful to identify and qualify the risk in terms of its frequency and severity
have to be conveyed.
These two preliminary stages in which risk managers have to be supported by
the various managers, end up with the phase in which the different
methodologies to treat the specific risks are determined and risk managers
directly involve the other managers in the implementation of the strategies
suggested. Risk managers should then be viewed as co-ordinators of the various
organisational functions for an optimal risk management.
The specific activity performed, the close co-operation with the managers of
the different areas, the possibility to invade others’ competences (with a high
independence from the decision point of view) suggest to position this
professional figure at the top of the organisational chart so as to give risk
managers the necessary authority to make their actions more effective 21.
In the Italian scenario the professional figure of the risk manager (in its most
advanced form), is quite rare and can only be found in large firms, although
in the latest years the minimum size to make its employment cost effective
tends to decline. The low presence of this professional figure in our firms seems
to be also due to a not sufficiently developed sensitivity towards risk management
(both of the top management and insurance companies), and to the difficulty
to assess its importance and the importance of the whole risk management
process in terms of cost-benefit analysis 22. After analysing the risk manager’s
role and tasks, it is necessary to develop a job description.
Mention was already made of the importance for risk managers to have a
crucial position within the firm and the top management support. Additionally,
risk managers must be willing to learn and investigate all aspects of the activities
carried out by the firm that might imply a threat for it. Risk managers must have
imagination, have a bent for human relationships and the ability to establish
the right relationship with everybody 23.
International Association
of Maritime Economists
19 Bannister & Bawcutt, Manuale di risk management, Golden Book, 1982.
20 Reference is made to the data from various organisation sectors or functions.
21 Refer to Paci S., Risk management strumenti e politiche per la gestione dei rischi puri dell'impresa,
edited by G. Forestieri, Cerap, Egea, Milan, 1996.
22 For further details refer to Forestieri G., Risk management: strumenti e politiche per la gestione dei
rischi puri dell’impresa, Cerap, Egea, Milan, 1996, work quoted.
Association for Tourism 23 Bannister & Bawcutt, Manuale di risk management, Golden Book, 1982.
and Leisure Education

489
 The Risk Management It is usually maintained that risk managers must have, first of all, a profound
System in the Passenger
Shipping Companies knowledge of human beings, as well as of the technology embodied into the
production function, of the typology of the factors used and of the output
quality. A crucial role is played by the ability to establish and maintain human
contacts, to perform a team work 24.
Ideal risk managers should also have a well-balanced behaviour toward risk.
They should be able to face risks without having imprudent behaviours, but
they should not be against risks searching for safety at all costs. This well-
balanced behaviour should be supported by the knowledge of the accounting
techniques, by a deep knowledge of all aspects of the firm’s commercial and
manufacturing activities, by a good experience in the insurance field and loss
control, in the protection against fire and other tangible dangers. Additionally,
they should have a good knowledge of individuals’ behaviours and how they
can translate into risks 25. Whatever the objective pursued by risk management,
the firm’s survival in the long-term depends on the level of profits and on the
resulting shareholders’ degree of satisfaction. That’s why the firm’s executives
must be aware of how the policies pursued by them have an impact on the
stocks price 26.
Risk managers have to make their own decision keeping in mind both the
prospects of change of the firm and the surrounding environment, and the
resulting constraints 27.
The tools available to risk managers in order to manage uncertainty can be sub-
divided into two classes: physical control and financial control of losses. While
the decision-making process related to the physical control of losses might be
affected by non-economic concerns, there are some limits beyond which financial
implications cannot be neglected. Actually there are close relationships between
management of risk cost and financial safety (and effects on cash flows).
Specifically Risk managers have to allow for the effects of their strategies on:
- expected cost of the risk;
- time trend of the variability of costs and profits;
- short-term variation of cash-flows;
- liquidity trend;
- profitability index of the corporate activity, taxes included;
- tax treatment of losses, insurance prices, tools for reserve accidents;
- availability and cost of external funding 28.

24 Chiarlo M., Economia dell'assicurazione danni, Ecig, Genoa, 1993.

25 Bannister & Bawcutt, Manuale di risk management, Golden Book, 1982.
26 This issue will be coverei in detial in the following sections. Refer to Banham R.Anderson,
Managing risk in the 21st century, by Risk Management, April, 1994.
27 For further details refer to Barlow, The evolution of risk manager, by Risk Management, April,
1993.
28 Refer to. Banham R.Anderson, Managing risk in the 21st century, by Risk Management, April,
Antonio Coviello 1994.

490
 The factors mentioned above constitute a number of constraints for risk managers,
and their impact varies over time and according to the firm typology. The
growth potentials of a company can be achieved in different ways.
It is paramount to use three crucial parameters: liquidity, profitability and
capability of getting funds. A proper level of these indicators denotes the
soundness of the business and, consequently, lower operational constraints for
risk manager.
In this case Risk Management can be oriented toward risk monitoring policies
“Parthenope”
University of Naples that generate higher profits in the medium-long term: physical control of losses,
high risk retention; funds allocation, capitalisation of losses 29.
A deterioration of the conditions required leads to higher constraints and forces
risk managers to design a strategy focused not so much on prevention and risk
retention policies but rather on transfer operations.
Undoubtedly the growth of our firms seems to increasingly depend on a wide
rage of intangible conditions and circumstances, such as top management
quality, technological assets, customer’s trust, organisational culture, innovation
capability etc; all factors that, although not included in a quantitative and
monetary determination process, have to be allowed for in a proper cost analysis
process. Actually this process is not related to the issue of the manufacturing
operational efficiency only, but has to be viewed as a more complex phenomenon,
linked to the competitive and social variables of the company system, its
organisational and managerial arrangements, the development of intangible
assets 30.
Innovation and flexibility do not merely represent the outcome of long-term
cautious investments made by the top management, as strategic management
cannot be confined to linear cause-effect relationships.
The procedural or functional relationships between the decision-making
leverages available to the strategic top management and the structural resources
of the firm are closely interconnected phenomena that, on their turn, affect the
organisational and managerial system, the clients’-users’ behaviour, as well as
co-operation with social parties.
It is worth stressing the relationships between possible objectives and suitable
tools to achieve them. These objectives can be pursued allowing for the options
provided by the technology, actual or potential operational and organisational
structures, human resources and invisible, available resources or resources that
might be developed.
The introduction of Risk management in Italy was mostly due to a number of
International Association
of Maritime Economists factors: the entrepreneur’s cultural level (and, consequently the in-firm cultural
level; the learning level; and, lastly, the degree of the firm’s co-operation with

29 Leyents A., Determining accettable risks levels, by Risk Management, October, 1993.
30 Refer to Barlow, The evolution of risk manager, by Risk Management, April, 1993 e Banham
Association for Tourism
and Leisure Education R.Anderson, Managing risk in the 21st century, by Risk Management, April, 1994, work quoted.

491
 The Risk Management and opening to the external world. In particular the in-firm cultural level can
System in the Passenger
Shipping Companies be identified as the entrepreneur’s role and culture and the degree of involvement
of the in-firm labour force.
These two aspects seem to be correlated and generate behaviours (assimilated
over time from the entrepreneur) useful for the firm’s success. When we speak
of entrepreneurial culture we mean the culture of the whole group, a culture
that, although to some exent is independent of the entrepreneur’s culture, is
nevertheless the result of it.
The organisational culture is correlated to learning processes as they make it
possible to test a number of basic assumptions (related to the experimentation
of alternative strategies to search for the best adjustment to the external world
and in-firm integration solutions); the outcomes are represented by knowledge
and operational mechanisms that are considered as valid, as correct pathways
to perceive and manage problems.
The entrepreneurial culture will then be the result of a constant interaction
between the assumptions and theories initially conveyed by the firm’s founders
into the group and the experience pathway of the group itself may vary as a
function of the cultural level of the entrepreneur and his group.
The in-firm learning level depends on the strategic approach planned for turning
individual knowledge into a collective asset 31.
It is then important for Italian entepreneurs to get in line with European
standards (England) and world standards (USA). In these countries the Risk
Management function has become increasingly important; it is applied allowing
for the firms’ (even small firms’) needs, and the risk manager professional figure
is viewed as an opportunity to find the correct answer to anomalous phenomena
occurring during the firms’ life. There is a pressing need to analyse the Risk
Management phenomenon so as to stimulate a debate aimed at its actual
application in the Italian firms, outlining an approach that allows for the
different strategic behaviours and industrial policy objectives. This will lead
to a cultural growth of the Italian top management viewed as crucial by many
people; such a cultural growth will also enable to give a different configuration
to the tools that the market provides and will provide in the future for risk
management.
A higher attention to the firm’s risk management is also necessary as result of
this current phase of changes that are usually sudden, urgent changes requiring
timely decisions demanded by difficult contexts where the firm’s survival is
challenged.
These are crucial or even drastic and traumatic changes involving not only the
strategies but also the organisation culture, the structure of ownership and the

31 It is a circular pathway through which competencies are transferred to and acquired by

individuals and groups. It is aimed at developing a level of knowledge cable of facilitating
Antonio Coviello independence, co-operation, integrated approach to the problems, innovative strategies.

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 stakeholders 32 whose commitment is required to pursue the following objective:
bringing the firm back to balance, profitability, development, namely to a
normal life with long-term prospects.

6. Case history Courtesy 33 – Pride of America

Abstract – Three months before completion, the cruise liner Pride of America
“Parthenope” sank in its harbour basin. The cause was a series of unfortunate circumstances.
University of Naples
The loss was adjusted on the basis of a compromise settlement at US$ 170m,
thus representing one of the largest losses for the German builders’ risk market
in post-war history. Nevertheless, the luxury liner was able to put to sea in
June 2005, thanks to stringent claims and cost management.

7. Circumstances and causes of the loss

Pride of America – a 81,000 luxury cruise liner – was under completion in
Bremerhaven (Germany). The fitting-out work on Pride of America had already
reached an advanced stage, as the vessel was to be handed over to the American
shipping company on 22 April 2004.
On the night of 13–14 January 2004, northern Germany was hit by a regional
storm with winds up to force 7 on the Beaufort Scale and gusts up to force 10.
The strongest gust in Bremerhaven (97 km/h) was recorded at around midnight.
Pride of America’s port side presented the stormwith an 8,800 qm surface to
attack, and the wind pushed the ship at an angle towards the quay. Probably
as a result of the wind causing the ship to incline sideways, the three 1.5 x 0.5-
m service hatches near the water line were repeatedly pushed down below it,
so that water accumulated inside the vessel, thus amplifying the heeling effect.
In the end, Pride of America came to rest on the bottom of the harbour basin
with a list of about 12°. Decks 0 to 3 were completely flooded, Deck 4 was half-
flooded, and Deck 5 partially flooded. 40,000 tonnes of water had infiltrated
the vessel.

32 Stakeholders should be viewed as subjects that contribute to the value-creation process;

International Association therefore they are fully involved in the system of the company strategic management. A distinction
of Maritime Economists
can be made between: internal stakeholders, i.e. those that act within the firm system (e.g.
ownership, top management and the firm’s human resources); external stakeholders (e.g. those
who exert an external influence on the firm (e.g. State, trade unions, public opinion); primary
stakeholders, i.e. those who have a formal contractual relationship with the firm (e.g. suppliers,
workers and customers); secondary stakeholders, i.e. all other subjects and/or groups indirectly
affected by the firm, that can have an influence or be influenced by the company activities. Così
Association for Tourism
Coviello A.-Pellicano M., La gestione del marketing nelle imprese assicuratrici, work quoted.
and Leisure Education 33 Courtesy of: Münchener Rück – Schadenspiegel 1/2006.

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 The Risk Management
System in the Passenger
8. Damage handling
Shipping Companies
Salvage operations proved to be extremely difficult and continued for more
than a month. The decks were permanently under water for the whole of this
time. In spite of the severe damage, rebuilding the vessel was out of the question
for scheduling and financial reasons.
Damage removal, repairs, and fitting-out work were performed simultaneously,
so that as many as 1,200 workers were on board at the same time.
In June 2004, due not least to public pressure – generated by the threat of
shipyard workers losing their jobs because the loss had made the shipyard
temporarily insolvent – the parties agreed to compromise on the indemnification
and its apportionment. The loss was finally indemnified at approx. € 170M,
which was actually below the amount specified in the compromise settlement.
This was due to the good cooperation between the average adjusters, the
shipyard, and the insurers and reinsurers.
Pride of America was handed over to its owners on 7 June 2005 and christened
ten days later in New York. It is currently in service around the Hawaiian
islands.

9. Insurance Policy Features

The Pride of America project was insured under a combined builders’ risk / hull
& machinery policy with the special feature that the shipyard and the shipping
company were both named as policyholders in an “and/or” relationship.
The builders’ risk and the hull & machinery policies basically cover different areas
and have in part different rulings on potential exclusions with regard to the
scope of cover. Another aspect is that the two policyholders, each with different
and even contrary insured interests, are linked in the policy by the formulation
“and/or”. This meant that a potential exclusion that could only affect one of
the policyholders regardless of the question of the onus of proof could not be
applied automatically to the other. The result was that the insurers could not
a priori invoke a particular exclusion from the cover that only affected one of
the policyholders.
There was also a conflict of interests as far as damage removal was concerned.
While the insurers urged the shipyard to rectify the damage as economically
as possible, the shipowner’s top priority was to restore the vessel as quickly
as possible. These problems could have been avoided if there had been a clear
distinction between the policyholders (e.g. by means of two separate policies).
The sum insured was based on a completed value of US$ 320M. The agreement
did not include a currency clause governing monetary transactions, therefore,
no arrangements were specified regarding the currency in which payments
should be made in the event of a loss. The sum insured was stated in US dollars,
but the claims were actually paid in euros. Substantial currency fluctuations
led to uncertainties when the claims were settled, which would not have arisen
Antonio Coviello had a currency clause been agreed.

494
 In addiction, although the policy gave the reinsurers the right to be informed
in the event of a loss, this right is not enough in the context of such large risks
– when the losses are mainly carried by the reinsurance market. A very common
solution in this kind of situation is the more extensive claims cooperation clause,
which does greater justice to the various interests and is advisable from the
reinsurers’ point of view.

“Parthenope”
University of Naples 10. Conclusions
As this brief case-history outlines, risk could arise in different moments of the
daily running business, even before a vessel is christened. Therefore, it is
extremely important for shipowners to verify that the complete life-cycle of
the asset is sheltered, carefully evaluating the insurance policies, as an essential
element of capital protection.

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of Maritime Economists

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and Leisure Education

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System in the Passenger
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of Maritime Economists

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and Leisure Education

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