Time for action on global programmes is here-Comment

It is high time that the market got together and thrashed out some answers to the thorny questions related to cross-border coverages. This debate has been rumbling along for five years at least since Zurich, one of the insurers on the podium last week, launched its MIP service and shook the whole market up in the process. Zurich’s heavy investment in the MIP service threw up a whole bunch of questions about the consistency, clarity and compliance of global programmes as they existed and who should be responsible and paying for which elements. A lot of people in the European corporate insurance market criticised Zurich for opening up a can of worms that they thought would have been best left tightly sealed and, in particular, out of the sight of national insurance regulators and fiscal authorities.hideBut regardless of what you think of Zurich’s strategy and the subsequent fallout the fact is that global programmes are increasingly central to the risk and insurance strategies of an ever-growing number of European companies as they seek badly needed growth in emerging markets such as China, Brazil and India. CEOs and CFOs want to be confident that expansion into such new territories is properly risk managed. It is the job of the risk and insurance manager to make sure that it is, not least through the provision of insurance coverage that is consistent with that held at home, compliant with local laws and works when called upon. The basic problem for the hard-pressed risk and insurance manager based at HQ in Europe is that he or she has a limited budget and cannot place skilled insurance managers in every territory in which the company operates. They either have to rely on the local management team to secure the right coverage and comply with local rules or partner with an organisation that can help deliver the local certainty, consistency and compliance desired. The international insurers, brokers and tax and legal advisers that populate this growing market see an opportunity for growth themselves and are keen to help their growing strategic customers. Unfortunately the local insurance and fiscal rules are varied and complex and often vague or even downright contradictory and wrong as noted by Praveen Sharma of Marsh during last week’s seminar that the broker co-sponsored. This is further complicated when the risk manager wants to achieve consistency and efficiency by wrapping all the coverages up into a global programme that may smooth the edges with DIL, DIC and financial interest cover. The problem is that all of this is open to interpretation as neither the local rules themselves or the methods adopted to smooth the programmes are fully tried and tested. This all brings uncertainty into the world of the risk manager whose job is to provide as much certainty as possible in an increasingly uncertain economic world. Interpretation also brings unwelcome costs as experts are needed to carry out that out. So the goal of this meeting of market leaders as agreed last week needs to be to try and find ways of removing this uncertainty that benefits no-one, except perhaps the fee-earning advisers called in to provide the interpretation. It seems that this must be a two-pronged effort that seeks to clarify the national rules in the first instance and then work out a consistent and robust way of applying the structure of global programmes upon them. To find clarity in the rules will surely need the International Association of Insurance Supervisors (IAIS) to come to the table. If, as John Hurrell of AIRMIC suggested during the seminar, a global real-time database of rules laid out on a commonly accepted template agreed by the IAIS and open to all can be delivered, that would go a long way towards achieving base level certainty. That will be tough enough in itself as the IAIS has shown no public interest so far in such an effort as it grapples with perhaps more pressing political projects such as how to deliver a global level playing field in solvency rules on the back of Solvency II. But perhaps even tougher will be an effort to find a market-wide agreement on how DIL, DIC and FI instruments could and should be applied and when, where and how they are applicable. This involves a lot of interpretation. But just because these are daunting prospects does not mean that they should not be tackled. There is a problem and risk and insurance managers have been moaning about it for long enough. The recently intensified activities of various national fiscal authorities in particular strongly suggest the head in the sand approach will not work. So something needs to be done about it and this is exactly why bodies such as AIRMIC, FERMA and the various insurer associations like the CEA and regulatory bodies like the IAIS exist. As Helen Hayden, risk manager with Prudential and head of AIRMIC’s initiative to seek more clarity in this area concluded during the debate at the end of the seminar the basic message for all is simply ‘just do it!’.

Time for action on global programmes is here-Comment

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