Future looking good for global programmes

Is there an increased demand for global solutions from continental European organisations with global insurance programmes? Or are companies sticking with local programmes/covers?

Absolutely, we still see a move towards global programmes. The number of underlyers that we issue that are part of global programmes has increased year on year for as long as I can remember (5% last year). Existing programmes grow organically, adding more territories as companies expand, regulations change or internal buy-in from local territory operations. We have also seen an increase in what may be termed ‘new lines’, for example, cyber and aviation programmes rather than the traditional property and casualty.

We have witnessed significant growth in the purchase of global programmes from the middle market as smaller businesses convert from local covers to global programmes. This is as a result of an increased awareness of the benefits of global programmes and also improving technology, which makes them more accessible.

I recall a statistic I read recently, that 20% of executives across Europe identified both new geographic market entry and M&A activity as the top growth priorities, which would indicate that global insurance programmes are set to continue to grow.

Are they looking for a greater range of global products and solutions, and has the insurance market responded to changing buyer demands?

Yes – cyber stands out in particular. It is one of the most unpredictable cross-border threats facing global businesses today and as technology evolves at an ever faster rate, this is certainly an area to keep an eye on. As technology evolves, we will see a reduction in existing risk but in all likelihood an introduction of new risk.

We are also seeing that clients are looking to simplify policies by combining products such as property and terrorism, casualty and aviation liability.

We also see the addition of smaller companies to a market traditionally dominated by some of the largest organisations. Whether in just two or 200 countries, a global programme can provide benefits and can be accessed by nearly all commercial as well as consumer products. For example, we recently introduced ‘Homeowners’ to our multinational offering.

What are the implications of Brexit for these buyers?

Based on an assumption that ‘passporting’ rights are impacted, I think Brexit presents the global insurance programmes community with a real opportunity. The probable requirement to cover UK via a local policy going forward opens the door to initiate the global programme discussion with entities that are covered on a ‘Freedom of Services’ basis today.

We conducted some market research a while ago, which suggested that as medium-sized business owners become more knowledgeable about global insurance, the more curious they become about programmes and seek to better understand what a global programme could do for their business. The research clearly confirmed a pattern to the decision-making process and our researchers identified the concept of a tipping point that triggers the shift from a local programme. This is an opportunity that Brexit presents for us.

What particular tax and regulatory issues do they face that can impact their programmes?

During the last years, we have witnessed various changes to regulation in different countries, as well as insurance tax increases. Increases in local retentions or compulsory reinsurance cessions have become more prevalent as regulators look to keep the risks within the local market. This, of course, impacts reinsurance and therefore particularly our captive programmes. Most of the CIMA countries now have a 50% retention and some countries such as Ghana have increased up to 100%.

Staying on top of the multitude of regulations is imperative to avoid any surprises.

As significantly, attention from the regulators has also increased. The call for a global approach to global insurance programmes from a regulatory perspective around DIC/DIL and financial interest clauses is still strong, and one we need to collaborate on across our industry to address.

The base erosion and profit shifting (BEPS) action plan launched by the Organisation for Economic Co-operation and Development is something that will likely bring scrutiny to companies using captives, and it is not limited solely to Europe. It is positive to see the industry pulling together to educate both politicians and regulators of the true purpose and value of captives as risk management tools.

What other challenges do these organisations face in terms of global insurance programmes?

Financial and regulatory risks associated with not having a contract in place at coverage inception can have negative consequences. We have made significant progress in our approach to global programmes in respect of contract certainty; however, there is still work to do. The key success criteria to a successful global programme have, and always will be, strong partnership and collaboration between client, broker and insurer. However, investment in technology has played an increasingly important role in achieving contract certainty in the past few years and promises to have more of an input in the future.

Bitcoin’s popularity is proving blockchain’s usefulness in finance, but entrepreneurs have come to believe blockchain could transform many more industries, including insurance. Ultimately, the uses of blockchain technology – which gives us a transparent, verifiable register of transaction data – are practically endless, especially since blockchain operates through a decentralised platform requiring no central supervision, while still remaining resistant to fraud.

We recently conducted a blockchain pilot with IBM that successfully completed a global programme. We used blockchain to manage complex coverage across the UK, US, Singapore and Kenya, and our experience tells us that further efficiencies are likely to be brought to the process in the future. It is interesting also to think about global programmes and the advent of cryptocurrency, and how this will potentially impact premium payments.

Contributed by Stephen Morton, head of complex multinational accounts, continental Europe, Middle East & Africa, AIG Multinational