Ten factors in choosing an insurer for a global insurance programme

Choosing an insurer for a global insurance programme is not an easy task, but there are a number of factors that can help risk managers to decide which insurers are appropriate for running a global programme. Here are the top ten factors to take into consideration.

1. Global representation

Global representation is clearly of vital importance. A multinational programme requires an insurer that is represented in as many countries around the world as possible, covering the countries in which the buyer operates and may look to expand into in the future. The aim is to have policies issued locally and serviced locally, but with just one insurer running the programme and providing excess covers to ensure worldwide uniformity.

The more countries in which the programme insurer is admitted, and therefore able to issue local policies, the better. Administration is cut down considerably, meaning cost advantages for the buyer, and there will be less chance that there will be any gaps in the programme. Clearly there will be some countries where the insurer will not have representation, and here an arrangement with a local insurer will be necessary.

2. Experience in multinational programmes

Experience is important, particularly when one is dealing with a large number of countries. The numerous tax and regulatory requirements around the world, combined with different legal systems, different cultures and different languages, mean that multinational insurance programmes are complex and time-consuming to put together. While every programme will be different and tailor-made to the individual company’s requirements, experience in the complex process of putting together such a programme should not be underestimated.

3. Ability to provide excess covers, master programme

The ability to issue local policies is important but it is equally important to be able to provide the necessary central covers to give the full protection that the client requires worldwide. A multinational insurer must therefore be able to provide DIC/DIL covers, master programmes and/or umbrella policies in order to boost the local policies to the required level of protection.

This is especially important in countries where insurance is restricted in some way, such as lack of capacity, or restrictive wordings, compulsory cessions or tariffs. One of the main requirements of multinational companies is to ensure that there are no gaps in coverage, and it is the provision of these excess covers that provides this protection. In a controlled master programme, the local policies are usually reinsured back to the multinational insurer centrally and this provides the required blanket cover.

4. Competitive pricing

The multinational insurer should be competitive in pricing, since one of the aims of a programme is to reduce premium costs, and by reducing the administration and through bulk purchasing, this should be achievable. The insurer should in particular be competitive in relation to fronting fees, reinsurance rating of any excess programmes, engineering costs, claims handling costs and offshore management.

However, the buyer must be aware that any multinational insurer that can successfully implement and operate a full multinational programme must be allowed to make a profit on the account. Such comprehensive service cannot be provided cheaply, nor maintained without an element of profit for the insurer. A long-term relationship with the insurer should ensure that the programme is cost-effective for the buyer and in the long term should be cheaper than a programme that is not coordinated.

5. Premium allocation flexibility

The insurer controlling a master programme must have the ability to allocate premiums to the local operations of the buyer, according to the requirements of the parent company. This must involve a considerable degree of flexibility, since the parent may wish to use the allocation of premium to encourage subsidiaries to implement group risk management programmes.

As well as rewarding/penalising local operations for their attitude towards risk control, the parent may wish to allocate premiums on the basis of a number of different factors, such as exposure, size of operation, ability to pay or claims experience. The insurer will need to work with the buyer on all these methods of allocation, and be flexible enough to accommodate all the different factors.

6. Fast and efficient claims handling

As with the choice of any insurer, the multinational insurer must be able to handle claims quickly and efficiently and ensure prompt payment of claims. However, this is even more important where a large number of different countries are concerned and where exchange controls, currency fluctuations and inflation all have to be taken into account. There should be the ability to pay claims either to the parent in the currency of the parent company, or to the subsidiary in the local currency, depending on the needs of the parent company.

7. Financial security

The security of insurance companies is obviously important to insureds. Where a company is putting all its multinational insurance with one insurer, it must be absolutely certain that the insurer will be able to pay all its claims, even the long-tail claims that may be 20 years down the road.

There are a number of factors to consider when assessing the security of an insurer, including ultimate ownership, intercompany relationships, reinsurance arrangements, management, type of business underwritten, government supervision and regulation, existing liabilities, and reserving approach.

8. Central control with local service

This is one of the most important criteria to consider when choosing a multinational insurer for a programme. Local servicing is important but there must be a level of central control. Consistency and uniformity of cover are high on the list of a multinational company’s requirements from a programme, and this requires the insurer to be able to have a high degree of control over its local offices.

The insurer needs to have a central focus to which the buyer can relate, and must also have the authority to direct and control the local offices that provide the local servicing. As a result, the multinational insurer should be organised structurally to coordinate centrally the total worldwide package and to be in a position to make decisions on fronting fees, underwriting, handling costs and claims settlements, even where there may be disagreements with the insurer’s local insurance subsidiary.

9. Risk control services

The insurer should be able to provide risk control services, risk engineering and other technical services, to the multinational and its worldwide subsidiaries, and most importantly, should be able to provide services that are consistent throughout the world. The services that a multinational insurer should be able to provide include loss control surveys, risk assessments and risk control recommendations.

10. A one-stop shop

The insurer should have a broad offering covering all the coverages that a multinational company may require, including covers for emerging risks, esoteric risks and hard-to-place risks. Risk managers should look for an insurer that is able to provide innovative or alternative solutions, tailor-made if necessary, to meet all the companies’ risk transfer needs.