Compliant international programmes

He called on brokers to follow the approach of multinationals, or at least to be pro-active in supporting ECIROA, and also called on insurers and reinsurers individually and jointly to begin being proactive in supporting their customers and asking for approvals in general, or at least, for exemptions.

“ECIROA is only a small group but represents the interest of insured multinationals,” Mr Droese said. “We call on Insurance Europe and single insurance groups to put this proposal and approach on their agenda with a high priority. ECIROA will pro-actively praise those looking forward and taking action, and shame those not co-operating and being inactive.”

ECIROA’s proposal, which we sent to the IAIS at the beginning of the year, is that multinational insurance programmes should be performed in an agreed or at least tolerated structure, which includes the following features.

hide

• Master policy in country of choice;
• Covering all kind of risks, including countries where foreign insurance policies are admitted;

In non-admitted-countries where foreign insurance cover is not allowed local policies have to be issued up to a working cover level (capacity and wording following market Master standard) with the allowance or the agreement to accept the Difference in Conditions and Difference in Limits (DIC and DIL) protection in excess of the locally placed policies.

Mr Droese listed the pros and cons of the proposals. He said the main advantages were:

• The assets and the business continuity of locally active subsidiaries/branches of multinational corporations are protected in the country up to the required amounts; while unemployment and loss of business activities as a consequence of lost offices, factories, or plants with the option to move into other countries, would be reduced.
• Potential claimants have better access to high limits/capacity in the domestic market in the case of a disastrous event (such as Bhopal, 1984);
• Employee benefits may rise due to worldwide aligned commitment in the insurance schemes of the multinational;
• Taxmen will be paid the proper share of IPT/levies/local charges;
• Local insurers have more options for co-operation, and access to different, perhaps more sophisticated, insurance wordings, with a high learning opportunity;
• Via co-operation agreements, insurers would have the opportunity for cross-border, in both directions, mergers to develop into regional or global players – which are needed for the growing demand of capacity in industrial lines of insurance and for natural catastrophe insurance;
• Premium growth in local market (additional employment and income opportunities);
• Entire opening of insurance market is not necessary;
• All market participants will fulfil the various requirements once the concept is introduced – this includes supervisors as well as insurers, reinsurers, customers, tax authorities and accountants;
• There will be more transparency and correctness in the P&L and the balance sheets of multinationals and insurers.

As for disadvantages, Mr Droese could only point to, “allegedly reduced local control of insurance market and reinsurance activities, but this is outweighed by advantages for the local population, local taxman, domestic insurance companies, and still then, control and supervision may protect the insurance market in a self-determined scheme with the desired balance.

And big international insurance companies may be exposed to increased competition once mergers between domestic and foreign mid-sized insurers begin. But is this really a disadvantage?”

As a result of the proposed changes, Mr Droese said that transfer pricing guidelines would be transformed, while insurance premium and local IPT would be charged locally with the effect of additional tax income.

He also argued that workers, the population and local assets would be better protected via local access to insurance policies provided through locally issued policies based on, or part of, international programmes with high capacity sums insured.

He pointed to the difference between the banking market and the insurance market: “The banking market is the only area in financial services where you don’t have cross-border controls, unlike the insurance sector with the protective behaviour of some supervisory authorities. What we want is to have is a combination of the local need of protection with the global requirements of increased compliance.”

He said ECIROA’s proposals have been presented to the IAIS, but that ECIROA needed to continue its efforts to allow the application of excess cover in all countries. “The target is the transformation, or an additional paragraph in, the Core Insurance Principles (CIP), so that it is in writing that each and every local supervisor should accept, wherever the need is, excess coverage for multinationals. And in advance of a future general rule, an individual approach by multinationals should receive approval of exemptions.”

He concluded by pointing out that ECIROA now has Observer status at the IAIS. “Most of the leading insurers also have Observer status at the IAIS. But if you ask anyone at the IAIS, when did an insurer come to you and ask for the market to be opened up, not completely, but to a certain extent, the answer is ‘never’. So we have a lot of good friends in the insurance market, all the carriers, but they don’t care for our problem.”