Risk managers must be flexible with their global programmes in the hard market to best balance consistency and certainty of coverage with cost and the requirements of local entities, delegates were advised at this week’s Commercial Risk conference.
A panel debate at the event considered what risk managers, insurers and brokers need to do to ensure global programmes deliver. Discussion quickly turned to the hard market and what impact it will have on programme design.
Whether by their own choosing to keep costs down, or a requirement from insurers, many insurance buyers are increasing their deductibles in the hard market. But risk managers were warned that on global programmes this runs the risk of leaving local entities exposed under a master policy.
They were therefore advised to think carefully and be flexible when it comes to adjusting deductibles so subsidiaries aren’t carrying more risk than they want, or left, in essence, uninsured.
Sabine Frehen, insurance manager at global plant-based food company Upfield, told delegates: “There must be that flexibility because you don’t want to give your local entity a deductible that renders them uninsured… if you are declaring your local entities essentially uninsured because you have negotiated a nice and efficient premium from a global perspective, you are solving one problem by making another.”
The other option is to allow certain subsidiaries to buy their cover locally with deductibles that make sense to them. Buying local also makes sense for entities that simply struggle to pay the premium organised by head office.
But Ms Frehen said consistency of cover is the best argument for having a global programme, so this decision must be weighed up carefully.
“You want to know what people are buying and from a claims perspective you want to know what is covered,” she said. “So overall, a global programme is my preference, but you should allow flexibility for local companies to say, ‘this simply doesn’t work for me’,” she added on the second day of the virtual ‘Global Programmes Europe: Gaining Maximum Benefit’ event.
Fellow panellist Diana Diffendarfer, global service and solutions leader in North America for Willis Towers Watson, said allowing flexibility within a multinational programme is vital for smaller entities in your organisation around the world.
“Maybe this means allowing for lower deductibles at the local level but taking the higher deductible at the master-programme level. There are different approaches to embracing some of the smaller subsidiaries. Allowing that flexibility but still maintaining control gives you that consistency of coverage and confidence in your programme,” she said.
Ayleen Frete, head of multinational, regional unit London at Allianz, said it is important that insurers pay attention to their risk consulting services as retentions increase in the hard market. This will help clients boost their risk management and mitigation, she said.
And with global capacity down, it is more important than ever that insurers understand their clients’ exposures, continued Ms Frete. It is also critical that renewals are started early and insurers share their risk appetite as soon as possible, she continued.
Ms Frete added that insurers must differentiate themselves on service and deliver innovative global programme structures to help clients cope with tough market conditions.
“We can provide alternative risk transfer solutions, which, perhaps in this difficult time, might be a combination of multiple coverages across multiple years that could be a benefit for certain clients. We can also help clients benefit from reinsurance solutions even if they do not have captives. Those are different ways we can make sure we are on top of our clients’ risk exposures even during a hardening market and limiting of capacity,” said Ms Frete.
Discussion moved onto whether multinational carriers will reduce local limits in the hard market. Matthew Latham, head of global programmes and captives at AXA XL, assured risk managers that this certainly isn’t the plan at his firm.
“Fundamentally we are not changing the limits that are issued for local policies. We firmly believe clients should get the right protection they need locally, so the claim can be paid locally,” he said at the conference sponsored by AIG, Allianz, AXA, Axco, Maxis Global Benefits Network, Swiss Re Corporate Solutions, TMF Group, Willis Towers Watson and Zurich.
Adding: “If the lead insurer needs to place more co-reinsurance to take more share of the overall programme, that is one thing, but it shouldn’t impact the local limits. Obviously, there are regulations in places that could have an impact from territory to territory but we certainly don’t have any strategic plans to reduce local limits around the world.”