As everyone knows, global insurance programmes aren’t easy, but they are necessary and important. Obviously there are many benefits, but that does not mean there aren’t difficult challenges to overcome. None of these challenges are insurmountable but as the saying goes: forewarned is forearmed.
So once again, Global Risk Manager reiterates its ten most difficult things about global insurance programmes. And to hear all about how these challenges and difficulties can be overcome, Global Risk Manager is holding a two-day, hybrid conference in London on 15-16 June 2022. Details here.
1. It is time consuming for everyone involved
Global programmes are time consuming to put together, and a strong and long-term commitment is required from both sides. Sadly, as with most of us, the one thing a risk/insurance manager does not have is time. And it is not as if risk management/insurance departments are overstaffed, or indeed staffed at all. It is usually one person spending every waking hour dealing with the myriad issues associated with a programme. Still, weekends are overrated.
2. It may not always bring the cost savings that local operations were hoping for
One of the potential benefits of a programme is cost saving. But that is not always the case. In particular, there may be some savings centrally but local subsidiaries can often benefit from heavy competition in the local market, and from longstanding relationships, giving their own cost savings. Be prepared for long calls with irate local managers.
3. Gathering the information needed can be a nightmare
Gaining information on the risks of subsidiaries worldwide will not be an easy operation and will require time and expense, as well as full cooperation by all operating units. A global programme requires a vast amount of information to be collected before it can be planned and implemented. This information needs to come both from the parent company, regarding its aims and objectives, and from the individual subsidiaries in each territory. We are talking cost analyses, analysis of the level and scope of cover required worldwide, a full risk survey of all operations, and loss information. Even with the internet, risk management information systems and insurers and brokers to help, this will take a lot of effort and will take ages. Still, once it is done, you will only have to do it again every… year.
4. The policy documents are rarely delivered on time
Yes, we’re talking contract certainty. It has become a big issue in recent years but things are improving slowly. Risk managers just want policies in place at the start of coverage, all the policies, the global ones, the local ones, the lot. Airmic said a couple of years ago that it wanted to see the issuance of policy documents at the time of contract inception to become the industry norm. That’s not much to ask, is it? To be fair, it is the complex nature of global programmes that makes contract certainty an issue but that does not help when the lack of a local policy creates a problem with claims, or where there are cash-before-cover requirements. The solution is obvious: start the process earlier and stick to a rigid timetable, and there is a good chance that policy documentation will be issued by inception.
5. Local regulators can make your life a misery
There has been a notable increase in regulatory pressure in the past few years. There has been a concerted move by local regulators to clamp down on those attempting to thwart, avoid or bypass regulations and laws. There are also signs of cross-border regulatory collaboration. Regulators are getting tougher, taking a more international approach and being much more diligent. Not least, regulators are particularly clamping down on non-admitted insurance. Whereas previously the issue of non-admitted was a grey area, now it is very definitely black and white.
6. Local operations do not like being told what to do by head office
If this is to work, the group risk manager needs to have the support of the group board. One of the greatest pitfalls of a multinational insurance programme concerns the relationship between the head office and the foreign subsidiaries or operations. Local operations may object to and resist perceived interference or strong-arm tactics from the head office with regards to insurance buying. This can be seen as local intransigence and a simple attempt to hold onto full local autonomy. Central control is not always possible and the success of a multinational programme may often depend on the ability of the risk manager to persuade local managers, and to produce benefits that will gain acceptance of the programme by the local companies.
7. No insurer has a presence everywhere
Where a multinational adopts a multinational programme, the choice of insurer will be crucial. Few insurers have worldwide capability and a full multinational presence, or international network. There are many insurers that claim to have a multinational presence but a lot will struggle to provide the servicing requirements of a multinational insurance programme. Programmes can fail where the insurer is unable to provide the full cover required, or the local claims-handling capability, or the local admitted presence. Given that no insurer is present everywhere in the world, it is crucial to examine and assess the strength of an insurer’s network, focusing on its network partners.
8. The taxman may make your life a misery
It’s not just the regulator. The taxman could cause all sorts of problems that the chief financial officer will not be happy about. Tax issues raise their head in the form of local policy taxes, premium not qualifying for tax relief, or payment of claims being treated as unearned. Basically, local premium taxes must be paid. A properly arranged programme should be able to balance the different tax issues to the benefit of the multinational, but it will be complicated and demanding. Multinational companies are increasingly facing demands to prove that their premium allocation methodology is just and reasonable. That is not as easy it sounds.
9. It is a difficult balancing act
Risk managers are trying to balance cost versus compliance versus cover. They want the broadest cover, for the cheapest price, and they want it compliant (so that claims actually get paid). They are facing pressure to ensure that all risks are assessed and where possible, covered by insurance, including emerging risks. They are also facing tough cost pressures from their organisations with regards to insurance buying, but at the same time they are facing an equal amount of pressure to ensure that all their insurance arrangements are compliant.
10. Who is to blame when it all goes pear-shaped?
As has always been the case, no one will take the blame when something goes wrong with insurance. Risk managers will blame brokers. Brokers will blame insurers. Insurers will blame the risk manager and the broker. Everyone will blame the lawyers. That’s the way it goes.