Contract certainty and compliance in an uncertain, complex world

In the current global environment, the complexity of doing global international business is increasing; it is becoming more uncertain and ambiguity is now a fact of life. As a result, contract certainty and compliance are two key issues for companies when it comes to global insurance programmes

As regulators increase their involvement and interest in the businesses operating in their respective countries, they also want to make sure that the ‘visitors’ are playing by the rules of the country. It is of growing importance, if not to say essential, for a large global player or a new player in the global field to work with a local insurance partner that has the right level of experience and knowledge to make sure the customer has a compliant solution.

To achieve optimal solutions, a global insurer needs to work together with its customers and brokers to understand what is important and critical to the customer, such as understanding their requirements relating to claims payments or the applicability of Insurance Premium Tax (IPT).

When it comes to claims, companies need to be sure that any insurance solutions align with applicable local regulations, to assist with prompt processing and payment of a claim.

Questions to be asked include:
– Can I pay claims into the country?
– Who is allowed to conduct loss adjustment?
– Are there any restrictions to risk engineering services?
– What are my tax obligations when I have non-admitted business?
– Are cross-border premium payments permitted?

As governments seek new sources of revenue, a sharp increase in tax audits shows that insurance is an area they are looking closely at. As Adrian Halter, executive director, financial services, tax, Ernst & Young Switzerland, explains: “We see an increased interest in the market/number of engagements by large, multinational non-insurance groups concerned about both their reputation and their potential liability with regards to IPT and similar taxes. Typically, the engagements involve a review of the corporate’s global insurance programmes with respect to premium apportionment [and] risk location, as well as accuracy of the taxes charged.”

While it is possible to use a patchwork of locally negotiated and issued policies, this creates the complex task of attempting to manage a myriad of contracts, and trying to understand local coverages, regulations and market practices. Procuring separate local coverage across a variety of local countries also involves engagement, communication and collaboration with multiple insurance carriers. Apart from being a time-consuming task, this also creates the possibility of significant coverage gaps, which could ultimately leave companies inappropriately insured when a loss occurs.

It also means relying on each country to follow the agreed terms, and depending on them to issue policies and collect payment in a timely manner. And access to accurate and timely information is often limited, while whatever information is obtained may be inconsistent in quality and depth.

The answer can be a centrally managed and globally consistent insurance programme – supported, procured and managed by a network of knowledgeable people on the ground where exposures exist. Such a programme provides a number of advantages, commonly known as the ‘five Cs’:

Coverages
If structured correctly, an international programme helps to bridge coverage gaps across territories and avoid duplications, while providing greater transparency on what the policy will cover in the event of a loss.

Compliance
Working with a global provider knowledgeable in the laws of local jurisdictions means organisations can have greater assurance that their insurance programme will align with local laws.

Control
A centralised international programme helps to ensure greater consistency and continuity, enhances service delivery, and gives greater transparency before, during and after programme implementation.

Convenience
An international programme can provide a one-stop-shop for an organisation’s international insurance needs. The programme can give access to specialists and market-leading tools, whether the organisation is a large multinational or a mid-sized company operating overseas.

Cost
Combining domestic and foreign exposures under a master programme can give organisations the ability to attain overall higher limits at lower cost, due to diversification and economies of scale.

Contributed by Helene Westerlind, global head of international programmes, Zurich Commercial Insurance.