Risk managers and brokers need to sharpen up global programmes act

The insurance group said that many regulators across the world are looking more closely at multinational insurance programmes at the local level, the affiliated entity over which they have direct supervision and the local broker placing the business on its behalf. The shift in emphasis is based on a heightened desire to enforce local insurance laws and increase taxable revenue with the local affiliate of foreign companies ‘in the cross-hairs’, claims the ACE report. The report highlights recent regulatory developments and action in India, the US and Brazil. It states that these are examples of a regulatory approach to non-admitted insurance that has broader consequences for the international risk management community than it currently believes.hideToday’s climate requires risk managers to better understand the tax and compliance issues that surround the placement of global programmes and improve their understanding of the evolving regulatory environment, said the report’s authors, Suresh Krishnan, General Counsel for ACE Group’s Multinational Client Group and Tracey Discepolo, Multinational Counsel, ACE North America and Counsel to ACE Global Services. Due diligence to ascertain what risk and insurance managers should buy to best cover their global operations, and from whom, is now critical, according to ACE. It is no longer acceptable to simply determine if non-admitted insurance is permitted in a particular country, the report, entitled Structuring Multinational Insurance Programs: The Emerging Regulatory Challenge to Non-admitted Insurance continues. Multinational insurance programmes have become popular amongst insurance buyers as they offer the opportunity to maximise global insurance capacity and minimise cost, while maintaining centralised control over risk management and risk transfer practices. They allow a consistent global approach to coverage terms, conditions and financial limits. Non-admitted insurance, bought from an insurer that is not licensed in the placement jurisdiction, is typically arranged in the domicile of the parent organisation to insure exposures in other countries. Often, no local policy is issued, essentially freeing the insured from paying local premium and taxes. But, the report warns that many multinational companies are potentially unaware that their global insurance programmes may be subject to compliance challenges in certain jurisdictions and of the reputational, tax and financial repercussions this may cause. “Many regulators across the world are beginning to view multinational insurance programmes from the perspective of the local affiliated entity over which they have direct supervision, in addition to the local broker intermediating on behalf of this affiliate. This change in posture is based on a desire to enforce local insurance laws, as well as to increase taxable sources of government income, with the local affiliate of foreign companies in the cross-hairs,” says the report. “Although regulators are concerned if insurers are transacting the business of insurance without a licence in their jurisdictions, they are now equally interested in how a local broker or local insured is insuring the local risks. Consequently, risk managers must determine the conditions that must be met by the local subsidiaries or affiliates,” it continues. Three recent enforcement actions have challenged historical assumptions behind the regulation of non-admitted insurance and underscore the concerns of the reports’ authors. In India, regulators are now focusing on the local insured and the use of non-admitted insurance, rather than the parent company’s insurance transactions outside the country. In the US, regulators are indicating that when an insurer transacts the business of insurance in the jurisdiction where it is licensed, in this case outside the US, and not at the location of risk (New York State for example), the regulatory focus is on the local broker and/or the local insured. Finally, in Brazil there is an example of an international insurer charged with conducting business in a country without a licence. These enforcement actions introduce the potential for significant unforeseen costs and consequent reputational risks, warn the report authors. “Each of these cases has import for the global risk management community.” “Other countries with fast-growing economies like Brazil and India are likely to pursue a similar regulatory posture in the future,” they add. It is therefore imperative that global risk managers enhance due diligence prior to structuring a multinational insurance programme. “In the past, merely determining if non-admitted insurance was permitted in a country was considered appropriate due diligence. No longer is this the end of the subject,” said Mr Krishnan and Ms Discepolo. By upgrading their due diligence accordingly, multinational organisations should, of course, be better able to assure compliance with two basic tenets of insurance regulation. The first governs the transactional elements of the business of insurance, which generally regulates insurer conduct. The other governs the location of risk and generally regulates the conduct of the local broker and local insured. “Preparing for these uncertainties requires a more in-depth understanding of the transactional elements of cross-border insurance, particularly as this relates to local tax and insurance regulatory requirements. As always, a multinational insurance programme should carefully consider the relevant regulatory regime of each jurisdiction. With no global standard for insurance regulation or a consistent application of insurance law worldwide, a compliance analysis of local regulations governing non-admitted insurance is de rigueur,” advises the report.

Risk managers and brokers need to sharpen up global programmes act

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