International programme compliance lobby gathers pace

Compliance of global insurance programmes continues to be a major focus for insureds and their insurers, and is the subject of an regulatory reform initiative spearheaded by Eciroa and various risk management associations.

Speaking at the European Captive Forum in Luxembourg earlier this month, Petra Riga, Global Head of International Sales and Distribution, Zurich, noted that not only has demand for multinational insurance programmes increased significantly in the last few years, but the number of countries where clients require a local policy has also increased, from 150 countries in 2005 to around 220 currently.

She said that in the current economic and business environment, corporations are constantly looking at new markets. And their requirements have remained the same when it comes to multinational programmes: they want global consistent coverage and claims service across all the countries.

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On the tax and regulatory side, she said compliance was crucial, noting that there are more than 140 countries that do not allow non-admitted insurance business. “So we have to issue policies in these markets according to local standards and capacity. We also see an increasing trend to increase local retentions. This all means there is an increased complexity to multinational programmes and presents major challenges to all the parties involved,” she said.

“We also see much more attention to governance around the world,” said Ms Riga. “More and more we see regulators co-operating with each other and sharing information, and this has in some cases triggered tax audits, especially in Europe and the US, and one area of focus is DIC/DIL. There is a clear disconnect between the needs of multinational companies and the different regulatory environments around the world.”

She explained that Zurich had started a dialogue with the IAIS, and had made some presentations to them and their members who are national regulators around the world, about the mechanics of multinational programmes. “There was an obvious lack of understanding of the needs of multinationals and how multinational programmes work,” she noted.

She told the Forum that a regulatory reform initiative had been launched, and was being driven by the industry and was a collaborative effort. The lead has been taken now by Ferma, Rims, and Ifrima in launching an industrywide coalition, in conjunction with Eciroa.

“What we are trying to achieve with this regulatory reform initiative is global consistent coverage. We are asking the regulators to allow us to provide non-admitted DIC/DIL covers,” she said. “Our suggestion is that it is important to have local policies in place which are in line with the local regulations, making sure that correct taxes have been paid to the local tax authorities. But in countries where the local market doesn’t have enough capacity or does not offer a certain type of coverage, that there is the opportunity to provide additional DIC/DIL coverage. It is important to recognise that the insurer carriers are regulated by their own country regulator.”

Guenter Droese, Eciroa’s executive representative, explained that as part of the initiative, Eciroa had drafted a new Insurance Core Principle (ICP) and suggested some amendments to some existing IAIS ICPs, “so that it can be possible that non-licensed companies will be accepted based on the fact that the insurers of the multinational programme will be regulated by one of IAIS’s supervisors in their home country,” he explained.

“What we are proposing is the opening of the borders only for excess coverages with the caveat that you have a locally issued policy. That means that the local supervisor has the chance to get a handle on these multinational programmes to a certain extent because the fronting insurers can inform and report to the local supervisor about the content and coverages in the locally issued policy,” he told the Forum.

He noted that the aim was to try to get a workshop with the IAIS. “Initially, the IAIS said that they don’t have sufficient manpower and they don’t have the budget, but a workshop is our target,” he said. “We are also inviting the OECD to co-operate with us, because their requirements to have transfer pricing in place and to pay the proper taxes is completely contradictory to what you can do in reality. So a regulator in a country is contradicting his own tax authority.”

And he concluded: “We are waiting for a reply from the IAIS, and I believe they will have to do something because they cannot ignore the G20, the OECD etc. So I think that they will have to open their minds and help us to a certain extent.”