International insurance programmes offer a range of benefits to multinational companies but there are several complexities that must be managed for these benefits to be realised. Swiss Re Corporate Solutions’ Reto Collenberg and William Porter discuss five of the major challenges in an international programme and the most effective way to overcome them.
Challenge 1: Contract certainty is often the principal concern for insurance managers. This has become an even more pressing issue in the last 20 years, following major events like 9/11, Hurricane Katrina and, now, the global pandemic. “No risk manager wants to be in a position where he has to tell the CFO that they don’t know if coverage is provided following a major loss,” says Porter. “It is therefore vital that an international programme provides contract certainty.” Is the master agreement in line with local policies and what exactly is covered through which policy? Is the client aware of the implications of a loss being paid via the master policy and not within the local policy?
The best way to mitigate this challenge is with a consistent approach to policy wording, where the coverage contained in the master policy is fully mirrored in the local policies. It also helps if losses are paid at the place where the loss occurs. This eliminates potential coverage gaps and avoids compliance issues and tax payments in case of a loss. Further contract certainty can be gained by automating as much of the policy process as possible, from the initial issuance to the ongoing updating of the policy.
Challenge 2: Understanding local capability is critical in a multinational insurance programme that spans several jurisdictions. The specifics of each local insurance market vary widely and can change fairly frequently. Keeping an overview of those local regulations and their implications on the local policy requires constant attention. Risk managers with limited resources will be stretched to keep constantly on top of such developments and they will often rely on their brokers and insurance partners to keep them informed.
Insurers need a strong global network to effectively service an international programme. Where they do not have their own operation, insurers must have solid partners in place locally who are able to provide top-tier services and are also familiar and up to date with changes in regulations. Picking the best local insurance partner in those countries is therefore extremely important. In an ideal international programme, they are not just service providers but close partners able to provide the best possible support to the end customer. A thorough due diligence process is crucial before choosing such a partner.
Challenge 3: Cash management: An international programme must have a coordinated approach to premium payments and all other financial transactions. A failure to do this can lead to delays in settlements and claims payments, or more importantly, it can delay premium payments and lead to the grave scenario where a company’s local coverage is cancelled because of premium not being paid.
The insurer must be in full control of the premium flow within an international programme and be able to manage that process centrally. Working with a fully integrated system allows the insurer to keep this control and to inform customers in case of late payment or non-payment of premiums. It also enables faster payments of claims, not just from insurer to insured but also from any reinsurance that may exist on the programme, whether a panel of traditional insurance carriers or from an insured’s captive.
Challenge 4: Currencies and languages. As with any international commercial agreement with many cross-border transactions involved, different currencies and languages add to the complexity. As outlined in the previous challenges, an understanding of the client’s intent is critical but there are also specific legal, financial, or contractual issues that must be resolved. For example, due either to jurisdictional regulations or the demands of customers, there will be cases where local policies must be issued in the local language and paid in the local currency. This creates a contract certainty risk due to language differences, as well as potential exchange-rate risk for both premium and claims settlements.
The insurer must be aware of the account structure in an international programme. For example, is the insurer the exclusive policy writer for the programme or are there other carriers involved? The insurer must also ensure that the invoice is issued promptly to shorten the payment period and thereby limit the currency risk.
Challenge 5: Claims management is a final challenge that must be mastered. There may be instances where a local office is fully aware of the claim and its specifics but the head office is not. There may be gaps in coverage or a failure to communicate with the loss adjuster. There may also be an inefficient use of systems that stems the flow of information and ultimately adds to the time taken to settle claims and ensure payment.
It is vital that these issues are discussed and resolved at the outset of the programme and not after a claim has occurred. It is also important to put the right technology and infrastructure in place to control information and communication. The introduction of client portals has helped firms issue their policies much quicker and to ensure full transparency of terms and conditions and policy wordings, as well as claims, premium payments, financial transactions and regulatory updates. These portals have also allowed clients to be more proactive by uploading their own information. This can include responses to risk assessments to enhance interaction with risk engineers, or loss incident reports to accelerate the claims process.
The world seems to keep getting smaller and more interconnected. The speed at which companies are expanding, often into new territories, is constantly increasing. Supply chains have also expanded and become more complex, creating a broader range of exposures to navigate.
An international insurance programme provider can act as a risk adviser for companies’ expansion strategies, providing advice on the implications and notably the risks of setting up in certain territories and the appropriate insurance approach.
When an international insurance programme is properly structured and resourced, it can not only master the five key challenges listed above but also act as more than a simple insurance policy. It can be a tool that enables more efficient and effective risk management across a client enterprise.
Contributed by Reto Collenberg, head of international programmes, APAC and EMEA, Swiss Re Corporate Solutions; and William Porter, head of international programmes, Americas, Swiss Re Corporate Solutions