Global programmes – and common misconceptions about them

Global insurance programmes for major corporates are now far more common than they were just a few years ago, and for good reason. They enable international businesses to transfer risk in an efficient way and also, importantly, facilitate compliance and good claims handling practices in many jurisdictions (which may have divergent regulations and laws) while providing the protection of an umbrella cover at a higher level.

Typically, local policies are issued in the territories that the global corporate operates, and a master policy sits above those (usually written in the jurisdiction of the parent company) with difference in conditions/limits provisions.

The local policies tend to be written on relatively low limits in a way that is consistent with local requirements or standards, with the master having broader cover and far higher limits – so that it provides security for large or possibly worldwide exposures and can “drop down” where local cover is not responsive (subject, obviously to the terms of the master).

Commonly, financial interest clauses are used to assist with issues around non-admission of the master insurer in certain territories where the local policy does not respond and the master would otherwise drop down.

There are, however, some common misconceptions about these structures that it is important to keep in mind.

The master policy is always broader than the local

This is not always the case. There are a number of reasons why the local policy might provide broader cover than the master, including:

• Differences in the applicable law. Sometimes terms are implied in insurance policies by local statute that can broaden the cover, or policy terms on aggregation or the application of limits or terms can be broader under the local jurisdiction than the jurisdiction that governs the master.
• A specific risk might be excluded in the master or cover restricted (for instance, in relation to pollution liabilities) in a way that isn’t in the local.
• Costs might be provided in addition to limits in the local but be within limits under the master, and in certain circumstances that can materially alter the balance of the cover.

Where this situation arises, it can lead to challenges in the handling of claims and create tension between the wordings.

One possible solution to this is to include a reverse difference in conditions provision in the master so that the broader cover in the local is incorporated into the master. Such provisions are, however, unusual and where they are available are often sub limited.

The master policy for the same year as the local will be the relevant policy

Again, this is not always the case. Differences in the attachment provisions to the two policies can complicate matters, as can aggregation or batching clauses. It can sometimes be unclear which master policy should respond or whether more than one is triggered – particularly where attachment provisions have changed under the master from occurrence/ occurrence reported to claims made. This is particularly acute in casualty losses with long exposure periods.

If the master pays, subrogated recovery rights should be available to the master insurer

Once again this is not necessarily the case. Where a loss has been paid under a financial interest clause, for instance, there may be no direct relationship so far as the claim payment is concerned between the master insurer and the local entity that has suffered the loss – and therefore no obvious right to subrogate exists.

It may be possible to address this problem by providing for any rights of recovery to be assigned to the parent, but the efficacy of such a provision, and the timing of the assignment, would depend on the law of the jurisdiction(s) in which the underlying claim or any recovery action is brought.

Contributed by Mark Kendall, who leads DACB’s Global London Property Casualty team and regularly advises on insurers on their global programmes. He was a panel member at our Global Programmes conference on 18 September 2024.