Carl Leeman – The customer view

Tony Dowding (TD): In general terms, what do risk managers want and expect from their global programme? What are the difficult areas? Carl Leeman (CL): A correct coverage that fits the needs of the company and that is compliant in all the countries where the coverage is granted. Over the last 20 years, nothing has really changed in the industry. There has been a lot of talk about the compliance issue but apart from bringing it to the attention of clients and tax authorities, nothing has been done. Twenty years ago we had the same possibilities and tools for compliance that we have now. It is mainly the insurers that are to blame because they haven't really changed their way of operating. If you buy a car, that car will always be adapted to the local needs and regulations of that country, but not in insurance. It is like Jaguar only selling its cars to be compliant for the UK market, and telling customers that it is up to the buyer to make it compliant to the local market. The way it is done now, insurers sell you a 'global policy' and say, 'here is the cover, but make sure that it is compliant in every country.' This is perhaps putting it a little bit black and white, but it is a problem.hideA lot of companies are in the position that if you want to buy a global coverage, firstly there are only five or six insurers that you can talk to - it is a very limited market for global programmes. Secondly, if you want coverage and find a deal on the wording, and then you say that you want the wording to be implemented on a global basis, that is when it starts to be tricky. Because they will say, 'we cannot give this in Brazil, or India, or the US', and then you have to go to the local branch and they cannot give the coverage, and then things start to get messy. Finally, they come to you with solutions that say, 'we will indemnify you in Europe and it is up to you whether you transfer the money to the country where the loss occurred (via a so-called FINC clause).' But in today's world, the tax authorities have changed, they have more means and cross country links at their disposal, and they are looking for money everywhere. TD: Who is or should be responsible for compliance? CL: Legally speaking, compliance is the responsibility of a combination of the insurer and the client. As usual the broker, most of the time, escapes responsibility. But practically speaking, it is up to the insurer to work on global solutions where they can actually offer the same wordings in different countries. TD: What is the solution? CL: Part of the solution is to have closer dialogue between insurers and clients. But the more difficult part will be to have agreements between insurers and the local authorities, so that they can provide coverage so that they can work out systems to provide those covers in specific countries. Apart from liability issues which, for example, would be different in the US and Canada, for a company operating on a global scale, and doing exactly the same activities, the risks are more or less the same to the business. They can have the exact same explosion or product recall in one country or another. Of course, there might be a different legal situation and, therefore, it would be perfectly feasible for insurers to say, 'we will give you the global coverage on a global basis, but the premium will be different in one country to another.' The potential liability in Brazil might be less that in the US, so they could provide you with the same coverage, the same amount, the same wording, but the premiums could be different, charging more in some countries. But making it more expensive is not the only solution, because the problems of issuing policies in Brazil or India, for example, are still going to be there. Business is going more global, but with the economic crisis, a lot of countries and authorities are taking more protectionist measures to protect their own local economy and to generate extra tax income. And this doesn't go along very well with businesses expanding globally. TD: What about solutions such as financial interest clauses? CL: It can be useful but not always, as it depends on the structure of your company and the specific situation. It is certainly not bullet-proof. As I said, it is a solution in some situations, but not the solution to all situations. If you have for example a joint venture with a 100% local company it can already be a problem. TD: What risk managers want, surely, is simply to be able to pay the claim where the loss occurred? CL: Of course, that is where it happened, that is where you need the money, and where the loss should be paid. And that is the job of the insurer, to have agreements with authorities, or to lobby the authorities, so that they can pay the amount locally. I am perfectly aware that it is easier said than done. But that doesn't take away from the fact that, as far as clients are concerned, we haven't seen any evolution in the market over the last 20 years. TD: Do you see the market expanding at all? CL: As far as the number of insurers is concerned, it isn't going to get any better. For example, some insurers may decide not to be Solvency II compliant, and instead focus on expanding in emerging markets outside of Europe. I don't think there will be a big increase in the number of insurers able to service global programmes, on the contrary, I see a narrowing in the market. Last week I talked to regulators and insurers active in South America, they told me: "Solvency II is not even on our radar screen, let alone that we would work on being compliant with it." TD: Is a market solution to the problem of global programmes and regulatory requirements and compliance viable? Do you support the moves by AIRMIC/FERMA to create a global insurance compliance database? CL: It would be a good thing to have this database as a benchmark, but it will require a huge amount of time and it will have to be maintained, so somebody will have to pay for that. Also, if the database ends up being, say, 100 pages, I guess that there will be an additional 100 pages of disclaimers! If you go to two different tax consultants with a question, the chances are, you will get two different opinions. It is not always black or white. It can be grey or different shades of grey. So I am in favour of the database but I can see some issues about making it reliable and useable, so I am a little sceptical. TD: What one thing would make your life as risk manager easier when it comes to global programmes? CL: On compliance, if the insurers can do their homework correctly and can have agreements with local authorities so that they can issue the coverages that we need/want in that country, and have agreements that those policies are compliant, that would be a huge step forward for insureds in the corporate world. There is a lot of talk about compliance, but as a company, you have a lot more on your plate than the compliance issue. Today this whole thing brings an additional risk to a company, while insurance is supposed to take away a part (the consequences) of a risk. How the global economy will go, exchange rates, fuel prices, social unrest etc, all of these are a much bigger concern to a company than being compliant with an insurance policy. But the bad thing is that you have to spend so much time and energy on such a lousy subject. We have so many more important things to deal with. It is a shame to have to spend so much time on this subject.

Carl Leeman – The customer view

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