The role for international programmes post-pandemic

The use of global programmes could actually increase as a result of the Covid-19 pandemic, according to experts from Zurich Insurance Group. IPN spoke to a small group of them, ahead of Commercial Risk’s two-day Global Programmes Europe conference (29-30 September).

Q: Will the pandemic end the inclusion of employee benefits in global programmes or accelerate it? Reto Heini, regional distribution manager employee benefits solutions: The pandemic will likely lead to an increase in the use of global programmes (including captives) for employee benefits (EB). We have already seen some practical examples of changes in corporate behaviour to support this theory.

To begin with, we have had actual examples of captives moving decisively to underwrite any gaps in cover for their existing programmes that have been identified at country level. This enabled the local policyholders to give assurances to their employees that they would not be subject to any Covid-19-related exclusions.

This type of proactive behaviour from the captive has already resulted in us receiving enquiries from other countries within the same organisation looking to use the programme for their local benefits, as they see the advantages of having a more flexible, tailored solution that can be consistently applied across multiple territories rather than taking a chance with a pure local standalone policy over which they have little control.

Another interesting dynamic was that as soon as the potential impacts of Covid-19 began to materialise, we started to receive enquiries from risk managers asking us to support them with identification and treatment of potential cover gaps for EB programmes.

In the past, this would have been a request that would have come in via a local policyholder, or maybe a global human resources representative, but it was quite noticeable that the responsibility in many firms had passed to the risk manager.

It confirms the trend we have seen for some years now of risk managers becoming more embedded in the management of EB risks. We believe this will raise the profile of the risk manager within their own organisation and make it easier for them to communicate the value of the global programmes, which again we expect to lead to an increase in requests from non-participants.

In the longer term, it is still difficult to predict exactly what the full impact of Covid-19 will be for the wider EB industry. So far, we have seen some relatively modest increases in life and disability claims, but this does not tell the full story. The more significant ‘death by all causes’ experience will only fully materialise in the future, as the additional claims for people with chronic illnesses who faced interruptions or postponements to their medical treatments becomes known.

Of arguably more concern is the impact on long-term disability plans, where experience of any event takes longer to evolve and, again, we have yet to see the impact of additional mental health and musculoskeletal claims from employees set up at home. This is not to mention claims from employees that have already lost jobs, or who may be at risk when some of the country furlough schemes come to an end.

All these factors combine to create potential uncertainty in the industry and that will in turn likely lead to a combination of pricing, policy coverage and capacity adjustments. Once these changes begin to take effect, the expectation is that organisations will look to use their global programmes as a way of housing and spreading risk more efficiently to help regulate the fluctuations as far as possible.

Q: Does the dramatic hardening in D&O cover and reducing capacity in many areas mean that this is more difficult to include within a global programme?

Luca Ravazzolo, global head of financial lines, commercial insurance: No, we are actually investing to enhance our global programme proposition in financial lines, including directors and officers (D&O), and we don’t expect a reduction in Zurich’s D&O global programmes – rather, we plan to increase our market share.

The fact that premiums have increased sharply and capacity has decreased, particularly for entity cover (Side C) for securities claims, has mainly the effect of reducing the overall programme master limit and potentially also of the primary master policy, plus a restructuring in the programme tower cover mix.

But, generally for D&O, the limits of the local policies are significantly lower than the master programme limit and contained within the master primary policy limit, therefore, besides a potential small reduction of local policy limits (relying more on master DIC/DIL) and an increase in premium, there is no adverse impact on the overall D&O global programme structure.

This includes the cover scope, which remains consistent with the one provided by the D&O primary master policy, despite a potential cover restructuring and restriction in the excess layers of the D&O master programme.

Q: Will the expected greater use of captives across Europe and worldwide lead to a greater use of global programmes as a result?

Paul Wöhrmann, head of captive services EMEA, APAC and LATAM, commercial insurance: Firstly, we have seen a change in the buying behaviour of current captive owners, which certainly consider including more lines of business that were previously placed in the traditional market.

Secondly, a change in the buying behaviour of customers who currently do not own a captive and are exploring how they could achieve more flexibility in the current market environment.

Thirdly, we see that captive owners in Europe and Asia-Pacific are becoming more and more interested in including EB-life programmes in their existing captives. Furthermore, the market also discusses whether new risks such as cyber should be ceded to captives.

Fourthly, the opportunity to increase the efficiency of international programmes thanks to digitalisation will certainly lead to a greater use of insurance programmes.

These developments will result in more international programmes being ceded to a captive. Current captive owners will seek for more captive health checks to check whether their captive retention needs to be adjusted or whether other traditional programmes should be included in the captive proposition.

Captive owners will benefit from an increase in the efficiency of international programmes, because more and transparent information will be available from a country to a programme level and up to the reinsurance captive level. The increased quality of information flow will enable risk managers to strengthen their risk management efforts and initiate more efficient negotiations with the reinsurance markets.

All in all, in the current market environment corporates will increasingly seek ‘decision options’, because they might be concerned about the terms and conditions of their insurers in their countries. Captives or virtual captives will be helpful tools to provide ‘choices’ and tailor-made solutions.

Q: Do we expect greater protectionism as a result of the economic downturn, making it more difficult to construct cost-effective programmes?

Madeleine Morris, head of international programmes legal and tax, commercial insurance: The rise in protectionism is not new, but as with many other things, Covid-19 is likely to accelerate this underlying trend. This is most likely to manifest in tougher restrictions and additional requirements at the local level, especially where the reinsurance of local policies is concerned. In the short term, this is likely to lead to a more fragmented and complex regulatory environment.

However, the shift from multilateralism to bilateralism and regionalism also offers an opportunity for the insurance community to advocate for increased harmonisation in insurance regulation by getting cross-border insurance commitments included in trade negotiations. The success or failure of those agreements may well act as a precedent for future change.

Q: Has Brexit been slightly forgotten as everyone focuses on the pandemic? And what impact might that have on global programmes for the year ahead?

Esther Rapp, project leader business development, international programmes, commercial insurance: There are not many weeks left of the Brexit transition period, which is scheduled to end on 31 December 2020, meaning that, thereafter, the right to write business under Freedom of Establishment and Freedom of Services rules from or into the UK will cease.

The design principles of Zurich’s international programmes, however, shall remain fundamentally the same, though the programme itself may need to be adapted to the new situation. Our future state solutions for international programmes are prepared and ready to be applied.

To hear more from these experts, register for the upcoming Global Programmes Europe conference at: https://www.commercialriskonline.com/event/gplon20/