Global insurance programmes are designed to, hopefully, simplify complex cross-border arrangements, and certainly where regulators can co-operate and regulations are aligned, it makes the process much simpler.
Undoubtedly, the EU’s Freedom of Services (FoS) means that a global programme covering the EU can be simplified enormously through its use, with one admitted policy, thus reducing costs and administration. But while within the EU there is the ability to utilise FoS to create pan-European coverage, there are often incidences where this may not be the most appropriate approach and where a local policy may be required or preferred.
As Ian Long, head of international programmes proposition and transformation, Swiss Re Corporate Solutions, explained: “FoS is one of the mechanisms that we use to cover risks across Europe and help reduce costs compared to handling several local policies. That said, local policies are important and can help deal with local regulatory requirements, provide access to local reinsurance pools and deliver service locally. It really depends on what type of service levels a client is looking for and what their preference is.”
Karen Gorman, regional leader, global services and solutions, Willis Towers Watson, said that while FOS is still a great solution for Europe, she still sees the need for local paper in some instances. “For example, where certification or evidence of cover is required in local language; for liability coverages where local law is very different to the law in which the master policy is issued such as Germany and France; and where local directors insist on a local D&O policy,” she said.
Local policy language is certainly a major consideration. “Local policies are the preferred approach where a client has a large exposure in an EU country, for the primary reason that it is easier to deal with losses in the local language,” said Daniel Trautner, head of Aon Global, commercial risk solutions, health solutions and affinity. “This is a client choice and not a necessity.”
Tim Galloway, divisional leader for multinational, QBE Europe, agreed: “FoS is clearly a good option in some scenarios but there are also numerous situations where a local policy is likely to be the more appropriate approach. Without a local policy, the local insured would probably not receive a policy wording in their local language and nor would the wording be tailored to the local market, meaning that distinctive and sometimes important local coverages could be omitted. In much the same way, the absence of a local policy issued by a locally registered insurer will often mean that the insured cannot benefit from the protection provided by local insurance pools for exposures such as natural catastrophe and terrorism.”
He continued: “Most significantly, the more remote, arm’s-length nature of FoS cover generally means that there is no local insurer representation in the event of a claim, which can clearly cause issues from a loss-adjusting perspective. So, while FoS cover might seem like a simpler and cheaper option for the customer, insurer and broker at the outset, it can be a false economy depending on the nature of the risk and what happens from a claims point of view. Our general stance is that if there is a reasonable expectation of multiple claims, or the possibility of a single large or complex loss, then it’s probably a good idea for a local policy to be issued.”
Melanie Windirsch, head of global network management, AGCS SE, said there are advantages to having one single admitted pan-European policy for the EU/EEA region, due to reduced policy administration, but noted that compliance with country-specific practices related to tax and compulsory covers has to be ensured.
“In countries where there are more complex local tax, levy and fee structures, a local policy would make it easier to comply with the local tax legislation and, in some cases, also accounting practices. Law and jurisdiction also need to be agreed between policyholder and insurer, as well as the language and currency for all FoS locations, which may lead to challenges depending on the country involved. In addition, servicing the client locally based on a local policy comes with benefits in the areas of market knowledge and local coverage specifics, as well as claims handling being locally available,” she said.
Bruno Laval, chief distribution officer, APAC and Europe, and regional manager, European markets, AXA XL, noted that in some countries, rules and regulations are very specific and it can be very difficult for clients to cover certain risks without local policies. “Take for instance French ‘décennale’ insurance; a number of foreign players have tried to enter that segment through FoS but the market favours local solutions. The closer to the risk and local regulation and practices you are, the more precise the solution you can offer,” he said.