Risk managers still struggle with complexity of global programmes–Portugal

They also noted that the implementation of local policies can take an excessively long time, which makes it harder to contract coverages for complex projects abroad. Nevertheless, some companies are putting more emphasis on the purchase of local coverages in order to complement their master policies while avoiding regulatory headaches in the process. “The setting up of international programmes stumbles on issues linked to local markets and the regulations of each country that are mandatory in terms of tax,” said Luis Campilho, Insurance Manager at EFACEC, the energy services group.hide“In the case of our liability policy, despite it being very broad, we have to buy local policies because of legal requirements. It creates some unnecessary costs that we cannot obviously escape from. Governments want to protect local insurance companies and brokers, and it is all quite difficult,” he added. The challenge does not end, however, once the right coverages have been arranged. The real test for an international programme is the speed with which claims are evaluated and policyholders indemnified when a loss takes place at an international unit. Tax legislation in some jurisdictions has the potential to create severe disruptions in this process. “There is also the matter of international claims in the context of a global programme,” Mr Campilho said. “For example, Brazilian law makes it mandatory to purchase all insurance policies locally, unless it cannot be found in the local market. We did not even find out whether it was possible to pay the loss straight to the Brazilian unit, as even if it was, it would be subject to taxes.” “Brazil is a fief in terms of the insurance market, and it has not changed of late,” added Jose Luis Amorim, Risk Manager at Sonae. Not all claims, however, need to involve a laborious process. In places where insurance and tax laws are not that different from Portugal’s, the process can be acceptable. “We have unfortunately had losses spread around the world, but we haven’t faced problems during their settlement,” Mr Amorim said. “It helps that the main losses that we have suffered have taken place in OECD countries, where legislation is similar to Portugal. I understand that in emerging markets these issues can be a little tougher to deal with. From our side, our insurance partners have been able to find us solutions, but it is true that we have not stretched them to the limit,” he explained. Portuguese companies have developed increasing business relationships with countries that apply strict policies to their insurance markets. The most notable example is probably Brazil and its admitted requirements, but there are plenty of challenges to be found in most mature markets such as the US. “We sometimes tend to think that complex jurisdictions, when we talk about the insurance market, are only found in the emerging world,” Mr Amorim said. “But some developed economies are even more complex, with very specific requirements,” he added. It may be necessary to make use of local markets to set up coverage in some jurisdictions. This strategy causes problems of its own because it can be hard to find the capacity that large projects require in local markets. This strategy can also, however, dispel a number of headaches for both financial and legal departments. It is a balancing act. “We have a tendency to take our business to insurance companies based in the countries where we go to. It helps to avoid much disruption in our programmes when we work to adapt the wordings of our master policy to similar policies,” Mr Amorim said. “When it comes to losses, we have always been able to have compensation paid locally, often recurring to the top-up clauses of our global policies,” he added. “Local policies do not always need to have high levels of capital and the losses are sometimes larger than the capital assigned to them. When this happens, we have not faced problems making the capital arrive at the local units that suffered the losses,” continued Mr Amorim. The Sonae risk manager said that in the current market conditions, where capacity abounds and rates are under pressure, conditions are ripe for an insurance programme that makes full use of local policies. “We are revising our local limits, and we are in the course of increasing them,” he said. “The market these days allows us to allocate more capacity to local policies so that solutions are more local than global,” explained Mr Amorim. A potential source of headaches, however, is the time that it takes to set up local policies. Red tape, local market practices and sheer complexity can make life difficult. “One of the problems we have seen in the past year is that in some jurisdictions—such as Chile, Georgia and India—we have had to issue local policies,” Mr Campilho said. “Even with the help of our insurance partners, the time that it takes to issue a local policy is outrageous. In Chile, it took three months, and it was not the worst case. In India, it was five months,” he concluded.

Risk managers still struggle with complexity of global programmes–Portugal

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