Tread carefully and work with experts on global programmes advises Sharma

The panel, perhaps not surprisingly, concluded that risk managers need to ensure that they have properly evaluated the various ways in which their global insurable risks can be covered with the help of credible risk advisers and global insurers. Panel participant Praveen Sharma, Senior Vice President Global Leader–Insurance Regulatory & Tax Consulting at Marsh, summed it up neatly as he said: "The risk manager must work in close collaboration with the internal finance and tax departments and ensure that they receive all relevant information to enable them to make an informed decision such that there are no surprises either for the risk manager or the internal tax and finance teams-as insurable risk touches all such disciplines within the multinational group." Mr Sharma also said that risk managers cannot expect it to be any easier in Asia than elsewhere in the world to work out exactly how they can comply with the diversity of local insurance and fiscal rules, while at the same time achieving consistency and cost savings through global programmes.hideMr Sharma shared the podium during the Parima conference session entitled Navigating The Hazards From Local To Global: Practical International Insurance Tips with Jan Mummenthaler, Head of the Insurance Services Group at the World Bank's International Finance Corporation, Prashant Grover, Head of Operations for the Asian business of Allianz Global Corporate & Specialty and Rajeev Kadam, VP Internal Compliance at Olam International, the Singapore-based global agri-business. In an interview with Commercial Risk Asia following the panel session Mr Sharma said that there is 'clear' anecdotal evidence following discussions with various Asia-based risk managers of a 'deepening' interest in using the global insurance market to protect the assets and people of multinational companies. "The primary objective is to manage the total costs of risk and to ensure that it is optimised, while ensuring best coverage for the multinational group-such that there are little or no gaps in cover," said Mr Sharma. The global programmes expert said that this demand is driven by the same factors as elsewhere in the world. Multinationals in Asia are keen to ensure that all options to obtain appropriate levels of cover are 'objectively assessed and evaluated' to enable them to make an informed decision about their insurable risks, said Mr Sharma. "As the knowledge is growing among the Asia-based risk managers, their demands and needs are increasingly aligned with those risk managers in other regions," he said. There is a popular assumption that Asian risk managers are more focused on price of coverage than their peers in other regions such as Europe and the US. The belief is that Asian companies are generally less aware of the wider value of risk transfer solutions beyond simply the payment of claims as quickly as possible to protect cash flow and the balance sheet. Mr Sharma said that based on his experience this is perhaps changing. "Asia-based risk managers are increasingly showing greater awareness of the value of an optimal global insurance programme that ensures best cover that is at an acceptable total cost of risk, while being as compliant as possible," he told Commercial Risk Asia. There is rising frustration among the risk management community worldwide about the inconsistency of insurance supervisory authorities when they deal with cross-border coverages. Risk managers want consistency of coverage across territories, central control and to achieve economies of scale through group purchasing when they build their international programmes. But there is precious little consensus among insurance regulators worldwide about exactly how such risks should be governed and in particular how risks that are transferred out of territories into international markets should be treated from a regulatory and fiscal perspective. The bottom line is that many supervisors in so-called emerging markets are under heavy political pressure to ensure that as much of the coverage is placed in local markets as possible. Politicians and local insurers are often keen to ensure that as much of the premium is retained locally to help foster the growth of local markets and create jobs. But local markets are often simply incapable of retaining large risks, particularly for the high value and complex infrastructure-style projects in which multinationals are involved. National rules that try to restrict the flow of premiums out of the country therefore are often inconsistent with the reality of local capacity and, to make matters worse for the risk manager, are all too often vague, leaving the risk manager unsure whether they have complied or not. As global programmes experts such as Mr Sharma have pointed out at various events organised by Commercial Risk Asia's sister title Commercial Risk Europe, this uncertainty can leave the individual risk manager and their company open to legal and fiscal penalties. In more extreme cases there is even the threat of jail for individuals who failed to comply or the risk that their company is kicked out of the market. This is a particularly thorny question when tools such as difference in limits (DIL) and difference in conditions (DIC) clauses are used by parent companies to close gaps that can be left by inadequate local coverage. Different insurers and brokers have different views on how such clauses are best constructed and used to ensure that they are compliant with local rules. The obvious solution to this problem is for the national supervisors to at least get together and agree common standards and approaches to provide risk managers with comfort that their approach is compliant. The European Captive Insurance and Reinsurance Owners Association (ECIROA), for example, has recently launched an effort to put pressure on the International Association of Insurance Supervisors (IAIS) to formally agree on how so-called non-admitted international coverage is treated to deliver more certainty for risk managers. So far the IAIS has not responded to this call. Mr Sharma said that there is little evidence to suggest that any such regulatory reform is on the cards in Asia yet. But he did say that a recent meeting of insurance experts organised by the Association of South East Asian Nations (ASEAN) suggested that the topic may well be on the agenda. "Generally, the regulators in Asia are presently keen to implement regulations to ensure good corporate governance and solvency capital of local licensed insurers. There is little evidence of regulatory changes being introduced to suit the insurance needs of multinational companies-unfortunately this is no different to what is happening among the regulatory community in other regions," Mr Sharma told Commercial Risk Asia. "Nevertheless, the keynote address by Mr Lim Hng Kiang, Minister for Trade and Industry, and Deputy Chairman, Monetary Authority of Singapore, at the inaugural ASEAN Insurance Summit on 1 October, 2014 was encouraging and revealing," he continued. “He pointed out that there is evidence of underinsurance within ASEAN economies and consequently there is a need to work together to create capacity and liberalise markets. Critically he pointed out the merits of allowing cross-border provision of insurance services, where appropriate," said Mr Sharma. In the meantime Mr Sharma advised risk managers based in Asia or active in the region to at least ensure that it is clear where the loss will be paid when a claim actually occurs to ensure that the coverage is compliant. "Multinational companies must ensure that there is complete transparency and certainty as to where the insurer pays the loss. Otherwise there could be potential adverse income tax and corporate finance implications for the insured group," said Mr Sharma.

Tread carefully and work with experts on global programmes advises Sharma

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