Value of international programmes enhanced by rise of intangible risks, says AGCS

The rapid rise in the significance of intangible risks and notably business interruption exposures faced by multinational companies means that international insurance programmes (IIPs) are more valuable to risk and insurance managers than ever before, according to Nigel Leppitt, global head of multinational and client services at Allianz Global Corporate & Specialty (AGCS).

Leppitt says in the latest edition of the AGCS Global Risk Dialogue Spring/Summer 2022 that most companies considering expansion overseas start by looking at the opportunities this can offer – new revenue sources, higher brand awareness, growth, profitability, or lower production and supply costs. But, he points out that, as well as scale, when a company crosses borders they have to also address uncertainty and operational risk along with their developing footprint.

This becomes even more important when faced with a global risk landscape riddled with uncertainty driven by the Covid-19 pandemic, rising natural catastrophes and geopolitical events such as Russia’s disastrous invasion of Ukraine.

Leppitt says that arguably, risk prevention and protection has never been so complex. He points out that the level of intangible assets on a company’s balance sheet has increased by over 225% since 2009, compared to 97% for tangible assets in the same period. “And it’s not just physical assets that need protection, but also knowledge assets in the cloud or brand reputation,” he says, before even mentioning the fast-rising cyber threat and massive bill for Covid-19-related losses.

“Multinational programmes – where a business can bundle all its risks into a single master policy covering its global assets and operations – are therefore attractive to corporate risk managers. These programmes have become more sophisticated over the years, and…can provide clients with flexible solutions to cover the spectrum of risk transfer and non-risk transfer needs,” argues the AGCS IIP leader.

The flexibility offered by IIPs particularly when combined with captives in a tough market phase can seriously help risk managers manage the uncertainty their company faces. “Many clients want to vary their risk portfolio over time, deciding which risks to place in the insurance market and which to retain on their own balance sheet or in a captive,” explains Leppitt.

The rise of BI as the key facing multinationals within the intangible world means that IIPs become even more relevant, argues Leppitt.

“BI is one of the biggest concerns facing multinationals. In 2021, insured losses caused by natural catastrophes were estimated at $105bn and the summer’s European floods are believed to have caused economic losses amounting to over $40bn. So, whether BI is caused by existential risks such as a natural catastrophe impacting physical property, cyber-attacks interrupting the supply chain, or a pandemic affecting individuals, companies have to consider the best ways to manage disruption and continue to trade,” he says.

“Businesses can mitigate through measures such as diversifying or digitalising supply chains or rigorous quality control, but ultimately they need further protection in the markets where they operate. This requires risk coverage in different regulatory and political jurisdictions and ensuring it is provided on time, at the right level,” continues Leppitt.

“The main advantage of a global programme is simplification and coordination. IIPs provide a centrally-coordinated master programme linked to locally-admitted policies. They cater for the range of cross-border risks, conditions and limits that a global entity needs to protect its business – while complying with local regulations,” adds the IIP expert.

Another benefit of using an IIP in an increasingly volatile global economy is to help managed regulatory and compliance risk, argues Leppitt.

“Most companies are experts in their sector, but not necessarily in understanding the global regulatory frameworks or licence rules linked to insurance. A benefit of using a partner such as AGCS is that the multitude of insurance guidelines and regulations are managed by the carrier rather than the client. AGCS can handle these in an international programme rather than a patchwork of country-level or individual agreements, policies and coverages,” he says.

“A global programme delivers full coverage, or “bridges” the risk of coverage gap, by having a master policy that specifies the difference in coverage and limits. This caters for the current risk footprint of the international business but can also “flex forwards”, as the business grows, acquires, divests or enters new markets. If a business has to adapt to emerging intangible or tangible risks, it can be taken care of in this partnership,” adds Leppitt.

This flexibility is particularly important in a changing insurance market when key decisions on costs and risk appetite need to be made, often at short notice.

“Regular multinational programme stewardship meetings allow the programme to be changed as client needs evolve. Design reviews allow for the evolving coverage versus self-retention decisions, depending on the risk manager’s appetite and portfolio,” says Leppitt.

Find out more on all issues involved in managing a global programme at Commercial Risk’s Global Programmes: Managing global programmes in a changing world conference in London on 15-16 June. Book your space here: https://events.commercialriskonline.com/GP22