Rising to the global challenge

Zurich is one of the world’s leading providers of international programmes and has invested heavily in this critical and high-value area for a number of years. The group now underwrites more than 7,700 programmes and incurred $2.852bn in claims last year. Commercial Risk Europe’s Adrian Ladbury asked a group of Zurich’s senior international programmes experts about emerging market trends ahead of our annual Global Programmes: Consistency and Certainty event, to be held in London on 12 June.

Inclusion of benefits picks up pace

One of the most interesting developments in the complex world of international programmes in recent times has been the increased interest among risk managers and their colleagues in human resources to include employee benefits within the mix.

Benefits are traditionally the responsibility of HR. Not surprisingly, the HR department can be quite protective of one of its core functions. This is particularly the case with local managers, who usually have long and close relationships with local benefit providers.

Reto Heini, senior corporate relationship manager and a member of the executive staff at Zurich Global Employee Benefits Services, said interest in including employee benefits within international programmes, usually via captives, has risen sharply in recent times, and will continue to do so. He said there is plenty of room for growth in this part of the market.

“In the last seven years, the demand for employee benefits cessions to captives has increased sharply. As an example of this growth, we had only one employee benefits captive customer before 2011. Now we have 24, with a premium volume exceeding $130m,” said Mr Heini.

“There are currently around 100 captives worldwide reinsuring employee benefits risks. On the other hand, we have around 1,500 active captives in total. There is, therefore, plenty of potential for growth,” he added.

Mr Heini said there are a number of compelling reasons why adding employee benefits to an international programme makes sense.

First, there is simple volume and cost-efficiency. Adding a whole new basket of risks to the captive makes it more cost-efficient and helps spread the fixed costs needed to operate.

Second, there is diversification. A wider spread of non-correlated risks within the captive portfolio clearly reduces the overall risk weighting of the vehicle. This can gain important advantages under Solvency II, Europe’s capital adequacy and reporting regime, added Mr Heini.

Then there are more strategic advantages.

If employee benefits are managed locally and in isolation from the rest of the risks, they are, by definition, not being managed on a holistic basis. “Making employee benefits part of a holistic risk management strategy will deliver real benefits for the corporation,” pointed out Mr Heini.

Another key advantage identified by the employee benefits expert is the ability to receive detailed data on local contracts. “You have a global view on employee benefits contracts that were usually only handled locally. This means that central HR normally does not know what is covered, or not covered, locally,” he explained.

But HR managers need to be persuaded of the benefits of centralising the risks, he continued.

“You need central HR to explain the process or global project to their local HR colleagues. This means that risk managers should work together with central HR and sometimes this can be a challenge, because the risk managers do not always know their HR colleagues,” he said.

“They often are not familiar with employee benefits risks. It is our job to explain the exposure to them and make them understand that it’s not rocket science,” he continued.

One important point to make is that all of Zurich’s captive programmes have been initiated by risk managers or captive managers, never by HR. “This means that if one wants to push for an employee benefit captive, you start first by talking to the risk/insurance/finance or captive manager and take it from there,” added Mr Heini.

Captive solutions

As Mr Heini suggests, a captive – whether a single vehicle covering all risks or separate entities for different groups of risks – is undoubtedly the best way for a risk manager to manage and coordinate a global programme.

Paul Wöhrmann, head of captive services at Zurich, said risk managers understand this clearly and are being increasingly active in the way they use their captive to manage and transfer their multinational risks.

“In our current market environment, we are experiencing large-captive owners leveraging their captives in a more active manner,” he said.

Mr Wöhrmann added that this allows risk managers to customise conventional insurance coverages in order to:

• Optimise insurance and reinsurance structures
• Bring two worlds (life and non-life) into one reinsurance captive
• Benefit from arbitrage opportunities in the markets (pricing, coverage and capacity)
• Strengthen the core business of the captive owner
• Develop new solutions for emerging risks.

The captive expert said large European captive owners have often increased their reinsurance share up to a premium cession ratio of about 70% to 80% of the entire gross written premium volume.

“The availability of structured financing of emerging risks, such as cyber, will require professional claims management, pricing and policy wording capabilities and services. Captive owners have the option to implement this by way of an international insurance programme, thanks to which a reinsurance captive can provide access to excess layer capacity in the commercial reinsurance market,” said Mr Wöhrmann.

*You are invited to attend Commercial Risk’s Global Programmes – Consistency and Certainty conference in London on 12 June, where global programme experts will provide an audience of risk and insurance managers and industry members with the latest essential intelligence on how they need to structure, design and manage their programmes to achieve their goals. For more information or to book your space click here.

Compliance is king

One of the biggest headaches for risk managers and the market that serves them when dealing with international programmes is making sure they are compliant with all the local insurance and fiscal rules. This is because they are often unclear and can change with little or no notice.

Many risk managers find this frustrating and do not understand how insurers and brokers can sell them a product without ensuring it is 100% compliant.

It is difficult to argue with this basic logic. But as Zurich, its competitors and the brokers point out, the world is unfortunately not that simple. The recent rise in protectionism the world over is not helping. Compliance, in reality, needs a collective effort.

Madeleine de Villiers, commercial insurance international programmes legal and tax specialist at Zurich, tackled our tricky question: Who is responsible for ensuring that a global programme is compliant and taxes are paid when and where due?

“All parties involved in a global programme have a responsibility for ensuring that it is written in compliance with applicable insurance regulatory and tax laws. Depending on the way the business is written, the insurer, the insured and the broker could be liable for calculating, collecting and/or remitting taxes to the relevant local authorities. Therefore, it is in the best interests of all parties involved in the transaction to have an awareness of local insurance regulations and tax obligations,” she said.

The best way of ensuring a programme is compliant and taxes are paid when and where due, is to seek sound legal and tax advice, added Ms de Villiers.

“Insurance regulations and tax laws are highly localised and vary depending on how the insurance coverage is provided. The best way to ensure compliance in a global programme is therefore to collect and maintain robust legal and tax advice on risk coverage and insurance-related activities in the context of specific and consistent factual backgrounds. Only in this way can parties to the contract have the certainty they need to structure solutions that are in compliance with local laws,” she added.

Process: Technology is the answer

During our annual Risk Frontiers survey of European risk managers, we have found that insurance administration, process generally and claims in particular are more important concerns than price and capacity.

This may well be a natural function of the long soft market, which has provided risk managers with plentiful capacity in most lines.

But the consistency of the message from all over Europe underlines a genuine frustration with the relative inefficiency of the insurance market post-sale and, most importantly, when a loss hits.

Given the complexity of international programmes, it is clear that insurers and brokers need to work harder than ever to offer their biggest multinational customers a smooth and hassle-free administrative process.

And, as Armin Schäfer, head of digital and new technology international programmes commercial insurance at Zurich, pointed out, the obvious way to ensure policies are issued on time, premiums allocated correctly and claims paid swiftly is through the adoption of the latest technology.

Those insurers that embrace and adopt the best new technology, and significantly improve process and communication between all parties involved, will gain an important competitive advantage.

Mr Schäfer said that, in general, it is about leveraging technology to move closer to the customer for the benefit of all parties. He said this is based on three core actions:

• Focus on digitalising the B2B “interaction points” with customers, brokers and partners
• Leveraging intelligent augmentation, driving automation and efficiencies towards customer service excellence
• Exploring emerging technologies such as the internet of things and blockchain as enablers for “highly connected ecosystems”.

Mr Schäfer gave several examples of what he meant by digitalising B2B interaction points.

“First, there is the self-service portal My Zurich, which provides data, insights and transactions. This provides self-service capabilities including insurance and risk engineering data, insights and transactional capabilities. It follows a one-stop-shop strategy, providing customers and brokers with one place to go to obtain a holistic Zurich portfolio view, value-add insights and services,” he explained.

And then there are self-service transactional capabilities, such as certificate issuance and supplementary regulatory and tax information, provided through the insurer’s Multinational Insurance Application, explained Mr Schäfer.

Another example of technology being used to improve the process is Application Programming Interface (API) connectivity directly with customer or broker systems, he continued.

“This is taking connectivity to the next level, cutting out inefficiencies of manual exchange of spreadsheet reports and cumbersome, non-value-add reconciliations. It offers system-to-system interfacing via externally facing APIs. It also enables seamless integration with customer or broker risk management information systems (RMIS) or market platforms,” he explained.

“This drives data-sharing efficiencies, consistency and timeliness of data exchange with customers and brokers. We are now looking back to one year of successfully running API connectivity with a longstanding customer and a market-leading RMIS platform. This confirms the value and efficiency gains. API connectivity is of strategic focus and believed to be a crucial enabler towards a better-connected insurance ecosystem,” said Mr Schäfer.

Another example is delivering service through intelligent augmentation. This involves leveraging emerging technologies such as artificial intelligence (AI) and robotic process automation to augment underwriting and servicing processes. It enables the intelligent pre-processing of broad information sources that support decision-making processes in various parts of the value chain, said Mr Schäfer.

“This drives consistency and quality through continuous improvement (learning) cycles and enables the processing of vast sources of data/information in an efficient way,” he added.

AI in international programmes

Another important area of development for the complex world of international programmes is AI for pre-processing unstructured information, said Mr Schäfer.

“In general, large international commercial insurance is based on complex and tailor-made propositions with a high level of non-standard and unstructured information that needs to be processed. Recent advancements in AI and natural-language programming have great potential to increase the level of automation and augmented quality assurance,” explained Mr Schäfer.

Another interesting area of development is RPA, which Mr Schäfer explained can be used to help automate well-structured and defined manual repetitive process steps.

“This can be used for tactical implementation of robotic automation to overcome legacy process and system landscape breaks. Examples include tackling manual rekeying steps and covering administrative document filing,” he said.

And then there is ecosystem connectivity. One example of this is the blockchain/distributed ledger technology initiative launched through the B3i consortium.

B3i was formed in late 2016 as a collaboration by insurers and reinsurers to explore the potential of using distributed ledger technologies within the industry for the benefit of all stakeholders.

The original organisation was formed under a memorandum of understanding. This enabled the 15 founding members – including Zurich – to share costs and resources efficiently and deliver a rapid prototype development.

In March 2018, B3i transitioned into a legal entity domiciled in Zurich. This was done to enable it to better manage the operational implications of having a live product in the market, including technology support and further research and development. The backers also believed that as an independent legal entity with its own capital and intellectual property, B3i Services AG would streamline the development, testing and commercialisation of blockchain solutions.

Antony Elliott, group head of business transformation at Zurich, is currently B3i’s chairman.

“In principle we see the potential to facilitate sharing, auditability and efficiency, [but] it is still early days. The consortium has a focus on commercial insurance use cases and could prove to be very innovative and bring significant benefits for customers,” said Mr Schäfer.

Examples of how blockchain is being applied to the international commercial insurance market are emerging for marine and cargo risks. In May of last year, for example, Insurwave, built by a joint venture between EY and Guardtime, was launched. This uses blockchain, DLT, Microsoft Azure infrastructure and ACORD data standards.

A.P. Møller-Maersk contributed to the development of the blockchain technology as a pilot client and is continuing on the platform with its marine hull portfolio.

Lars Henneberg, head of risk and insurance at Møller-Maersk, said at the time: “Operating around 350 owned container vessels across the world, marine insurance takes up considerable resources for us. Moving it to this platform is helping us to automate manual processes and alleviate a range of inefficiencies and frictional costs in the way we have used to trade marine insurance.”

Don’t forget the people

And, finally, one important area that is easily overlooked when embracing all this new technology is training. You can design the best systems in the world but if you do not have the people in place who know how to operate them, they will not deliver.

Michael Blattner was named head of the global commercial insurance academy at Zurich in March of this year. He looks after the development of Zurich’s people and their technical and professional competencies through global learning and development solutions.

He said: “Training and certifying all our 2,000-plus people who are selling, writing and servicing our programmes on our globally standardised operating procedures and directives is critical. This is to ensure that we have the correct use and usage of our global tools and the best practices on effective communication and collaboration techniques when working across borders.”

Equally important is the work that Mr Blattner and his team carry out with brokers.

“We are sharing our best practices with global and local brokers through the Zurich Global Broker Academy, which provides a clear, structured and innovative approach to the complexities of key insurance topics. This incorporates the latest training techniques. Our courses give participants the opportunity to master concepts while providing a platform to grow their professional networks,” he explained.