Ten reasons why you need a global insurance programme
It may feel as though globalisation is currently under attack, as wars, sanctions and pandemics threaten global business, nationalism appears to be on the rise, supply chains struggle and trade wars loom.
Some companies are truly global, whereas others may only have an operation in a couple of territories outside their own. But when it comes to insurance, coordinating policies and coverage in a global or multinational insurance programme makes sense for the vast majority of companies operating in multiple locations.
So once again, Global Risk Manager reiterates its ten reasons to consider establishing a global insurance programme. And to hear all about the benefits and challenges of setting up and running a global insurance programme, Global Risk Manager is holding a two-day, hybrid conference in London on 15-16 June 2022. Details here.
1. You finally get control over the insurance programme
For many global programmes, the one thing above all others driving the implementation of a global programme is to achieve some form of central control for the group risk/insurance manager. For any large multinational company, it is vital to have an understanding of the group’s exposures, how they are covered and with whom, rather than leaving it all to individual operating units or subsidiaries around the world.
2. You can have broader, consistent cover… with no gaps
Perhaps the most common reason given by risk managers for the establishment of a multinational insurance programme is to do with cover. A programme should be able to provide much broader cover than available to individual subsidiaries, as well as providing consistency of cover and avoiding any gaps in cover in any given territory. Multinationals need to know that all their subsidiaries have the same type of cover, and the same levels of cover. In other words, common cover and adequate limits.
A multinational programme can also mean higher limits, as well as wider cover, being available to subsidiaries. This is because greater capacity can often be available from the multinational insurers for such a programme than could be achieved through local purchase of insurance from local insurers.
A multinational insurance programme can also avoid the problem of overlapping insurance cover, due to the dispersed nature of the purchase of insurance. The interdependency of operating units and subsidiaries in different territories is an exposure that is difficult to assess and purchase cover for at the local level. It can only properly be addressed through a central programme.
3. If you do it right, there can be cost savings
Another obvious benefit is cost, though this is not always guaranteed. Multinational insurance programmes benefit from bulk buying and economies of scale, allowing the premium expenditure to be reduced. Set against this is the fact that, in some cases, local management may be able to purchase cover at lower cost than it can be purchased centrally. In addition, ensuring that there are no gaps at all in multinational cover may not be possible without increased expenditure. Nevertheless, with the right programme and provider, cost savings can be made.
4. It helps to keep those subsidiaries happy when it comes to retentions
One of the advantages of a multinational programme, at least as far as the group risk manager and the head office are concerned, is the flexibility that such a programme allows in terms of retention levels. A multinational programme involving the use of a captive or other form of self-insurance can allow the multinational to take a much higher retention level for the group as a whole, thus gaining premium reductions, while setting lower and more realistic retention levels for subsidiaries. The group may be comfortable taking a high retention, but this could be a problem for subsidiaries.
5. You can reward better risks and penalise poor ones
A multinational programme can also provide flexibility in terms of premium allocation. The importance of premium allocation and retention levels is down to their value in the advancement of risk management and loss control. Many companies will see their insurance programme as part of a wider multinational risk management programme, the aim being to improve risks and reduce or eliminate exposures through loss control.
The parent company will often wish to increase local deductibles in order to encourage greater risk management awareness, and to reduce pound-swapping with insurers. This is, not surprisingly, unpopular with subsidiaries but by adopting a multinational insurance programme, the parent company can achieve greater premium credits on multinational basis and therefore reward greater use of deductibles by subsidiaries.
A multinational insurance programme means the parent can equally reward or punish subsidiaries according to their acceptance or not of central risk management programmes and loss control measures. Better risks can be rewarded and poorer risks penalised. However, there is, in practice, only limited scope for such actions, since multinationals should look to set premium levels that are in line with the market, in order to avoid unwelcome attention from the tax authorities.
6. You get the full picture on losses
Claims information is vital if loss control measures are to be implemented and a risk management programme put in place. Such information allows problem areas to be identified and addressed, as well as revealing the effectiveness or otherwise of loss control measures. Under a multinational insurance programme, information on worldwide exposures can also be gathered and centralised, as well as claims information.
The combination of such information allows for much greater forward planning, in a consistent manner, and decisions can be made based on full information from around the world. This information can be standardised and put in a user-friendly format, rather than information arriving from around the world in an inconsistent way and at different times.
7. It is the best way to make use of your captive
Group risk/insurance managers are increasingly having to justify the existence of their captives in terms of the capital it requires and its role in the group. Having the captive at the centre of the global insurance programme makes the best use of the captive and its ability to fund deductibles and set the appropriate retention levels for subsidiaries around the world. It is the perfect tool to coordinate the different covers of the various subsidiaries around the world, as well as collating all the risk information on exposures and losses. The captive can reinsure the local fronting insurer and then reinsure into the worldwide reinsurance market or back to the fronting insurer.
8. There will be much more efficient claims handling
Unified claims handling gives greater flexibility and means more efficient claims payments for subsidiaries, allowing claims to be paid in the most effective way – either to the local subsidiary direct, or through the parent company. If the claim is paid to the parent company, then it retains greater control over areas such as rebuilding, the implementation of loss control measures, or even the future of the foreign operation. It is not unheard of for a company that suffers a total fire loss in a foreign territory to decide, once the claim has been paid centrally, not to continue operations in that territory and to move the operation to another country.
9. Your profile in the group will go through the roof
There is no doubt that a centralised global insurance programme provides much greater visibility for insurance and risk management in the group. It is important to raise the profile of insurance and risk management, and indeed, the risk/insurance manager. A chief financial officer will take far more interest in the insurance of the group where a global programme exists, rather than leaving subsidiaries to buy their own insurance.
10. Air Miles
OK it’s not the main reason, but it all helps.
Commercial Risk and Global Risk Manager are hosting a two-day, hybrid conference: ‘Global Programmes Conference 2022 – Managing global programmes in a changing world’. The conference takes place in London on 15-16 June 2022.
For more information, click here