IN THE SPOTLIGHT: Praveen Sharma, Marsh

International Programme News talks to Praveen Sharma, global leader – insurance regulatory & tax consulting practice, Marsh, about global programmes, compliance, local supervisors and ‘fit for purpose’ structures.

In general terms, what do risk managers want or expect from their global programme?

Risk managers of multinational companies are keen to ensure that the global insurance programmes are fit for purpose and meet their respective needs and expectations in terms of coverage, cost and compliance (the fundamental 3C concept). They want to ensure that the insurance structure is relevant and appropriate to address the risk transfer needs of their multinational companies, and provides them with the desirable balance sheet protection for the group assets and people.

Is there an increased demand for global solutions? Or are companies sticking with local programmes and covers?
Risk managers are keen to ensure that the total cost of risk, including premium-related taxes of the group insurance programmes, are optimal and within their budgetary constraints while ensuring that the insurance programmes cover the insurable risks of the group in as compliant a manner as possible. The risk manager and the multinational group do not wish to create a tax and compliance issue that could potentially create a reputational risk, at the cost of cheaper insurance structure.

What is your view on the use of financial interest coverage?
It is not a panacea to the vagaries of the numerous compliance issues facing insurers and multinational companies. The financial interest cover clause in the master/excess/umbrella policies should protect both the insurer and the insured entity from potentially adverse insurance regulatory risks. It should be well constructed to ensure that it meets the local legal standards and does not create unnecessary gaps in coverage. Also, it should be used as a matter of last resort, after ensuring that the local policy terms/conditions and limits for insurable risks located in countries where non-admitted insurance is not permitted, are appropriate.

Do local supervisors sufficiently understand how global programmes work, and to what extent are they hampered by a desire or requirement to retain premiums in local territories?
The recent pronouncements by certain insurance supervisors, particularly in the Asia and Africa regions, are creating a few challenges for multinational companies with cross-border activities and interdependencies, in structuring an optimal global insurance programme. Recent pronouncements and edicts issued are predominantly protectionist in nature, in that the regulators are keen to ensure that premiums are retained in the country, local (re)insurers are assured of growth, and local insurance markets are provided with the opportunity to develop.

This approach can be contrary to the development of the local infrastructure, particularly if the country is seeking to attract overseas investment from international companies to boost its economy. While foreign investors are keen to expand and create greater shareholder value, jobs and support the local economy of the countries in which they operate, some insurance regulations may seem to hinder these objectives.

Who is or should be responsible for compliance?
This is a team effort between the multinational insured group, its global insurers and risk advisers – particularly as local regulations, in many regions, are either very rigid or grey. Marsh is striving to ensure that multinational insured groups are fully aware of the potential regulatory and tax challenges through its insurance regulatory & tax consulting practice, so that the multinational insured group can make informed decisions.

Will compliance always be a grey area, and will this simply continue to be an issue for insurers and buyers that has to be accepted? Have the various databases on regulatory requirements and compliance that are now available helped in providing some clarity on compliance?
None of the various databases created by third-party service providers, insurers or brokers can ever provide complete clarity on the laws of the countries with regard to insurance regulations and taxes, because the laws themselves are somewhat grey, ambiguous and open to differing interpretations and applications depending on the circumstances. The regulators and tax authorities need to maintain an open dialogue with all interested parties and understand the needs and expectations of the industry, and where appropriate, adapt their approach for mutual benefit.

What are the key factors when balancing cost versus cover versus compliance?
The critical issue for all risk managers to appreciate is that coverage of the insurable risk of the multinational group is non-negotiable. It is paramount that the insurable risks of the multinational group are insured in an appropriate manner and that the global insurance programmes respond in the expected manner in the event of a loss suffered by the multinational insured group. The insurance programme therefore must be structured in a manner that is ‘fit for purpose’ and meets the insurance needs and expectations of the multinational group and is as compliant as possible from both a regulatory and tax perspective. While the issue for many global insurers may be capital, capacity and thus cost, multinational companies should look to the long-term objectives rather than short-term premium cost savings.

What is the biggest problem when implementing a global programme?
The biggest challenge for multinational companies when structuring the global insurance programme is to ensure that there is complete transparency and consistency of all the regulatory and tax issues from all the global insurers involved. Unfortunately, global insurers’ differing interpretations of the local regulatory and tax laws of the various countries can create significant confusion and uncertainty at times. This uncertainty could give rise to potential adverse premium tax, corporate income tax and corporate finance challenges for multinational companies.

Do you think the global insurance market will grow, with more players looking to provide programmes? Or is the market limited by the requirement to have an owned network?
Global insurers are striving to ensure that they balance their internal capital and cost structure with the insurance needs of their respective clients. This creates conflicts within the global insurer’s business model and thus leads to a dichotomy for multinational groups to achieve an optimal global insurance programme from the cost, coverage and compliance perspective.

What one thing would make life easier when it comes to global programmes?
Consistency of application of the insurance regulations and tax laws among the global insurers. Furthermore, a greater understanding and harmonisation of the regulations among insurance supervisors, to cater for the needs of the multinational groups that have cross-border activities, would lead to an optimal global insurance programme that would benefit all stakeholders, including local government, local economy, jobs and foreign exchange constraints.