Global programmes: Certainty in an uncertain world

Global programmes are more relevant than ever following the challenges of Covid, economic uncertainty and market volatility. Tony Dowding, editor of Global Risk Manager, spoke to several of the leading multinational insurers and brokers in the US to consider some of the current issues relating to global programmes


  • David Rahr, global leader, Marsh Multinational
  • Andy Zoller, head of international programmes, Zurich North America
  • David Valzania, head of multinational, BHSI
  • Steve Bauman, global programmes and captives director, Americas, AXA XL
  • Stephen Morton, multinational head of complex accounts, AIG
  • Toby McNamara, head of multinational – US, AIG
  • Rajika Bhasin, associate general counsel, AIG multinational

Has there been increased demand for global insurance solutions generally from US multinationals and a more coordinated approach to global insurance purchasing?

David Rahr (DR): The last 24 months have been incredibly challenging for all global business, whether it is cost, operational pressures, regulatory and tax issues – it all makes managing risk that much more complicated. The development and leveraging of a global programme is one of those strategic options that a client has to manage the current environment.

The headline is that global programmes remain very popular, and probably the most effective way to manage risk globally. The challenges created by Covid may be pushing clients even more towards global programmes than in the past.

Cost pressures, coverage challenges, tax and regulatory issues, efficiencies that need to be properly addressed – these are a few of the factors why companies are buying in a centralised way. Having the same market at the local policy level and at the master policy level will create ease of claim payment and a more efficient claim process, as opposed to arguing across two carriers as to whose policy responds.

We are seeing a continued push towards global programmes, however there are some local market dynamics where it may be worthwhile to take advantage of local appetite or competitiveness for certain kinds of risk. For example, in Japan you may be able to buy more earthquake coverage under a local property programme that is not aggregated under the master programme.

Andy Zoller (AZ): The real change has not been so much in property or general liability lines but in non-traditional lines. There has been increased demand, particularly in financial lines, including cyber, D&O and professional liability. We’re seeing some growth in surety and builder’s risk as well. These are key segments and have gained a lot of traction in the last ten years. And there are more players going global, so there is growth overall. Otherwise, the property and casualty lines have been traveling on a familiar path for the past 35 to 40 years.

Increasingly, when businesses reach a certain size, they know that they need a coordinated global programme with master coverage and underlying policies in other countries. They recognise the benefits of this transparency and contract certainty, versus leaving it up to local offices.

David Valzania (DV): We’ve seen a steady commitment from US multinationals to purchase coordinated global programmes. If anything, the events of the last two years have reinforced the need to have, and the benefits of, globally coordinated coverage and resilient providers. Customers continually review the need to place local policies in countries where they have a presence, and in some cases today are placing fewer local policies, but that seems to be a condition more related to their business needs than the benefits of coordinated global coverage.

Steve Bauman (SB): Overall, there continues to be a strong preference across many industries and sectors for the advantages of a more coordinated approach to global insurance purchasing. Long-term costs, breadth of coverage and limits available are among the top reasons for which global programmes remain competitive options for US multinationals. Operating across borders, dealing with multiple regulating bodies, financial systems, etc, can be challenging. Partnering with one single carrier with local experts in each region of operations is, at the end of the day, much more cost-effective.

Toby McNamara: The pace of change and intensifying nature of global risks have elevated the role of insurance and risk management, as many US multinationals look to expand across geographies in their search for growth and cost efficiencies. Given the current geopolitical environment, these companies are increasingly seeing the need for international coverage to address a growing number and magnitude of risks.

During the past few years, we have found that beyond the benefits of price optimisation, balance sheet protection and local policy issuance, coordinated multinational insurance programmes can help US multinationals respond consistently and proactively as the global environment remains uncertain. Carriers and brokers can optimise the architecture of the programme to address coverage, compliance, claims, money movement and tax considerations to meet the client’s risk management objectives.

Is there generally a case for having US exposures in a separate primary tower to the rest of the world?

AZ: Businesses almost always have a separate tower for US casualty exposures. That’s been an established practice for 40 years. It is mainly due to the litigious environment in the US but there is another factor to consider, and that is how quickly you are able to enact changes to policy language.

The US is unique in that each of the 50 states has its own insurance regulations and regulators. Because of this, it can be difficult to enact new policy language, which can take upward of a year or longer for approval. Most countries outside the US can approve new coverage much more expediently. So when enacting material coverage changes on policies with long-tail exposures, it makes sense to separate out the US policies so you can enact changes immediately where you can and plan for where you can’t.

From the property perspective, I believe it is more important to keep a combined single global property programme once you are over a specific size or if you have unique coverage needs. Separate US and international property towers are OK for the budding multinational who is just dipping their toe into the international arena as their needs are not that complex and their exposure to loss is not as high. When you get into a space where you are manufacturing or need to worry about issues like contingent business interruption and the impact of supply chain issues from your vendors, then a single global property programme is a better fit as it helps to help close coverage gaps.

The increasingly litigious environment on the casualty side has gone beyond impacting P&C to affecting financial and specialty lines as well. This trend helped drive the need to create our new offering – a standalone tower for foreign D&O exposures. The demand for the standalone international D&O cover is actually coming from directors of the overseas subsidiaries. They are worried that US claims have gotten out of control and could erode the limits on a global master, so they are now requesting a separate international tower to ensure there’s capacity for non-US risk. Historically, businesses weren’t sure what their D&O need was in a given country, and in some cases the insurance product wasn’t available; now the need is better known and understood.

DV: Separate US liability towers are more common when the multinational programme is either purchased outside North America, or when one of the large, global brokers is involved. In the latter case, those brokers tend to have a separate placement team on the foreign side, and therefore will place a foreign liability programme separate from the US. In these cases, however, it’s common for the domestic and foreign towers to come together under a single US umbrella.

Also, occasionally, customers will request dedicated limits for US D&O, with separate limits set aside for a rest-of-world tower placed outside the US, and similarly cat property exposures, especially higher limits, are localised. These decisions are typically made due to the outsized exposure the US legal market presents or to localise coverage to only those locations where needed.

SB: Where possible and accepted, uniform towers often provide more cost effective placements and broader coverages. If you add identified hot areas to the coverage, it can be augmented with additional limit purchases. The fact remains that there are nat cat exposures all over the world, so it’s not easy to avoid dealing with such exposures.

Are captives playing more of a role in the global programmes of US multinationals?

Stephen Morton: The current hard market environment alongside capacity restrictions across most industry sectors have led to increased interest in alternative risk solutions with self-retention vehicles, such as captives, becoming central to a consolidated, long-term risk management approach – and this holds true for the global programmes for many US multinationals. As coverage becomes more expensive and more difficult to procure in the traditional market, one of the greatest advantages of a captive is the ability to be flexible and craft tailored terms, conditions and limits.

We have seen that for many multinationals, integrating a captive into a global programme can be the ideal way to centralise overall management of the programme’s global risks while also optimising the insured’s risk retention strategy.

The most successful multinational programmes find the right balance of risk retention, traditional and alternative risk transfer, with a strategy that adapts to, and smooths, volatility across changing market cycles and risks. The benefits of self-insurance, including having greater control over risk financing and risk management, as well as customisation of loss control and claims mitigation strategies, remain relevant when prices soften again.

DR: There are certainly clients that have global programmes without a captive but, for large complex multinational clients, having a captive does provide many strategic and financial advantages probably beyond just the support of the global programme.
The number of captives continues to grow, fuelled by the continued hard market challenges, nat cat risk, claims inflation and increased risk transfer costs. New formations of Marsh-managed captives grew 13% in 2021, with the majority in North America.

SB: Captive growth and utilisation are seeing significant increases which will certainly continue to reflect growth in the area of global programmes for US multinationals. Growth in the number of captives, owned by more and more companies, and growth in the utilisation of captives reflected in premium levels and breadth of coverages, are significantly up in recent years. Several factors are fuelling increased captive utilisation – firm insurance pricing, new and emerging risks, and desire for increased risk retention by insureds. US multinationals are using captives globally to organise increases in risk retention and capture premiums for long-term cost efficiencies.

DV: We have not observed any meaningful change in the role of captives in multinational programmes, at least structurally, though some customers will, of course, increase their corporate retentions in firming market conditions, as we’ve seen during the past two years.

AZ: The hard market over the last three to four years has driven more captive enquiries, and they’re keeping our team very busy. Companies are trying to find ways to save money. In some cases, rates have gone up 30% on some coverage lines, so customers are looking to move additional coverages like cyber into their existing captives. By doing this, they may reduce costs in the long run by having more direct insight and management of their risk versus shifting this off to an insurance carrier.

Other reasons for this shift could be a desire to use their own actuaries or put a product line in a captive that the traditional insurance market doesn’t want to cover. What’s enabling the more sophisticated use of captives is better access to data and the ability of risk managers and insurance carriers to analyse it more easily.

And our data capabilities are only going to grow. There is a very large push in the industry to further digitalise global networks, making it easier for customers to access more of their global data. Whether it’s API data feeding into an RMIS system or a carrier’s direct portal, the world of digital interaction is about to explode in the international and captive space.

Are US regulators/tax authorities taking a stronger compliance line on global insurance programmes?

DR: Governments around the world have spent a lot of money managing Covid and eventually they will need to recoup that expense, one of which may be through taxes, so we do see tax authorities under pressure to increase revenues and audit compliance. Certain countries have either introduced new premium tax rules or increased the premium tax rates, and many authorities have increased their efforts to audit global insurance programmes.

In the US, some states are more focused on direct procurement placements and making sure that taxes are being paid. We’re also seeing greater enforcement of certain insurance-related taxes at the state and federal levels.

Outside of the US, we’ve seen some trends in parts of continental Europe where tax authorities are more keen to review the premium allocation and methodology adopted not only by the insurer but also the insured to assess whether or not it is proper, and ensure that they have paid the appropriate tax. So it is not just about increasing the premium tax, but also a lot of emphasis on making sure that companies are actually paying the tax, and that the premium allocation is defendable.

SB: The global insurance regulatory infrastructure continues to grow and it is more important than ever to be sure that an insured has truly compliant insurance programmes everywhere around the world. The cost of being non-complaint is significant and is in itself an emerging risk of increased proportions. Captives should seek highly qualified partnerships to ensure compliant policy administration with quality pre- and post-inception services in the US and around the world.

AZ: US regulators and tax authorities are fairly consistent on compliance scrutiny, but we see this scrutiny increasing outside the US. Another recent challenge involves evolving regulations for data collection, management and privacy. We have seen that with the EU’s General Data Protection Regulation (GDPR) and in China with the personal information protection law.

Rajika Bhasin: An indirect effect of the ongoing uptick in US domestic regulatory measures is the need for earlier engagement and planning to adhere to a growing number of requirements when covering local exposures under global programmes – including when the multinational is domiciled in the US.

The recent confluence of systemic events, particularly in the natural disaster/climate realm, has resulted in a greater number of consumer-protectionist measures. These include specific coverage provisions, suspension of cancellations or non-renewals and/or special claims-handling requirements. Some have an extraterritorial effect, extending not simply to policies issued in a given state, but those covering in-state exposures from another state.

Considered against ongoing globalisation, both from and into the US, this carries important considerations for stakeholders implementing global programmes with local exposures, particularly those requiring a high level of customisation, manuscripting and/or large number of locations across multiple states. Surplus lines placements have emerged as an attractive option for covering US exposures, given the flexibility on pricing and terms, provided the multinational is positioned to abide by the corresponding broker and tax requirements.

Multinationals and their insurers must therefore partner early to determine the optimal risk management strategy in a manner that achieves compliance against a growing number of domestic requirements, while maintaining the agility to respond meaningfully to global demands.

Find out more on managing a global programme at this year’s Global Programmes: managing global programmes in a changing world conference in London on 15-16 June. Attendance is free for risk and insurance managers. Book your space here.

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