When the going gets tough…

The last few years have been unprecedented and often traumatic for people, companies and countries. Even without the pandemic, nationalism has been on the rise, trade has been threatened, political instability and violence have continued, and globalisation has felt under threat. Tony Dowding finds out what this has meant for global insurance programmes, one of the beneficiaries of globalisation and trade liberalisation Clearly, increasing nationalism and protectionism are not ideal for global programmes and will simply serve to make them more complex as greater compliance issues need to be considered, or barriers surmounted. But it may be that the need for a coordinated global programme, with local compliance, is even greater in 2021 that it ever has been. The longer-term impact of the pandemic is still uncertain, but the global nature of the pandemic may just encourage multinational businesses to take a more coordinated approach to insurance generally (not just pandemic-related). Rapid market contraction The other issue to be factored in when looking at the current global programme landscape is the hard market. The soft market environment saw global programme offerings expand with broad form wordings, coverage extensions and increased capacity. Marcel Weiss, head of international programmes, commercial insurance, Zurich Insurance Group, says that in the soft market of the last decade or so, it was challenging, especially in the international programme space. “The market was soft for such a long time where every year rates decreased, terms and conditions broadened and capacity expanded,” he explains. “But now, we are in a hard market environment. While the pandemic has accelerated certain changes, Covid-19 didn’t start the hardening. The changes in the market already started before in the US, later came to EMEA and finally arrived in APAC and LatAm, with perhaps less of an impact. For us it is crucial to continue to work closely with our customers and to provide them with the advice and services they need to achieve their strategic goals in a sustainable way.” Daniel Trautner, head of Aon Global, commercial risk solutions, health solutions and affinity, says the rapid contraction of the market as a result of the hard market cycle has been consistent across a number of lines of business, but particularly in PI/D&O/cyber. But he also notes that while the hard market conditions have impacted on policy covers, there has not been a reduction in cover impacting the policy language for global insurance (DIC/DIL clauses, FINC, etc). “All insurers are managing volatility in various ways but mainly through capacity, which at best is being ventilated, at worst reduced or removed, and coverage scrutiny. Examples include communicable disease, cyber, strike, riot and civil commotion, US auto attachment points and product exclusions, to name but a few,” says Mr Trautner. In addition, he says, some insurers have exited whole portfolios of business, which creates its own disadvantages for competition, and while new insurers have entered the market, these are very specialised players. And he notes that there has also been a change in insurer referrals to head office, which means longer timeframes for decisions, and information requirements are quite intrusive even where there has been a long-term relationship. Mr Weiss says: “The rate increases and the tightening and strengthening of terms and conditions globally have been challenging for businesses, as the change to a hard market happened very quickly. And at the same time, they have been hit by Covid-19 and have suffered as a result of the pandemic and the related lockdowns. It’s challenging for them because the situation is quite volatile. What businesses are looking for is stability and the ability to plan for the future." Pandemic response It would seem that the pandemic has certainly not held back the development and growth of global programmes, and may even have served to focus minds, at a very senior level, on the need for a global solution to insurable risks, while acknowledging the need to address local issues. Karen Jury, UK head of multinational, AIG, says that despite the many geopolitical challenges facing the world today, globalisation is continuing as organisations look to expand across geographies in their search for growth and cost efficiencies. She believes the pace of change and intensifying nature of global risks have elevated the role of insurance and risk management. “As global trade is undertaken across increasingly protectionist regimes, subjecting companies to heightened regulation, there will invariably be an increased impact with respect to compliance as companies seek to avoid fines and the reputational consequences of falling foul of regulatory requirements. Beyond the benefits of price optimisation and balance sheet protection, multinational insurance programmes can help organisations respond consistently and proactively as the global environment remains uncertain. Carriers and brokers can optimise the architecture of the programme when there are changes in trade and legislation, ensuring there are no gaps in cover and that individual policies will respond as expected when a loss occurs,” she says. Ayleen Frete, global head of market practice management, global client services and multinational, AGCS SE, agrees, pointing out that the pandemic and increased economic uncertainty “have moved companies to focus on global initiatives managed centrally and our multinational clients demand more information for decision-making regarding costs”, adding: “In an international insurance programme, it is equally important to look at the local risk approach as well as global, however by continuing to promote consistency of coverage worldwide, insurers are able to minimise local issues arising.” She adds: “In the world of global insurance programmes, managing change and being flexible to accompany a client on their risk journey is the core. Global insurers have been managing changes in regulation across regions for a number of years and increasingly we are seeing queries from clients with regards to response of the local policies regarding claims.” Increased demand Others agree that there is clearly an increased demand for international insurance solutions. “This was the trend prior to the pandemic and has continued throughout and has mainly been driven by the availability of capacity, centralised control, cost savings, centralised risk data as well as broad and consistent coverage,” says André Rohlmann, general manager of International Network of Insurance. “We see that customers continue to demand globally consistent programmes that are locally responsive. We feel that the best way to cater for this demand is the establishment of a controlled master programme.” Ian Long, head of international programmes proposition and transformation, Swiss Re Corporate Solutions, adds: “In general, we see a move towards the coordinated approach that international programmes provide, adhering to compliance requirements, dealing with complex tax schemes and increasingly complex supply chains. Having the peace of mind in terms of fully understanding the global insurance cover in place is an important factor that contributes to this trend. It is too early to tell if the global pandemic alone increased demand for international programmes, although it is clear that our customers are assessing their risks afresh in the light of the experience.” The pandemic has certainly raised awareness of risk and companies will be looking at their response and their covers, and in particular the wordings, given the problems around business interruption. “We haven’t seen evidence yet that the pandemic has had any meaningful effect on how companies structure their insurances or on the demand for global programmes, but we are expecting to see an increase over the next couple of years as risk managers have the opportunity, with the worst of the crisis hopefully now behind us, to reflect on lessons learned,” says Tim Galloway, divisional leader for multinational, QBE Europe. “The main concerns so far, from both a customer and insurer perspective, have been around coverage clarity in policy wordings and I can definitely envisage more risk managers being drawn to the greater consistency and certainty of global coverage that a multinational programme typically affords,” he adds. Mr Weiss says the insurance industry has changed dramatically over recent years. “While insurance used to be purely about risk transfer, the focus now is on complementary analytics and risk engineering services to help businesses improve their resilience and prevent and mitigate losses. Covid-19 demonstrated how fragile global supply chains really are. As a consequence, many businesses are now looking to strengthen their resilience to be prepared for future challenges, including new pandemics,” he says. Board-level interest Perhaps what the pandemic, and to a lesser degree the hard market, has done is raise the issue of global insurance programmes and requirements to board level. Not surprisingly, one of the first thoughts of many a board member at the start of the pandemic would be: what cover do we have for this global risk? “The pandemic has really been an eye-opener to many managers and they are now looking at their global programmes more closely,” says Mr Weiss. “They look at the cost, alternatives and new services and products from insurers to help them better navigate through the impact of Covid-19, as well as the challenges of the hard market. In addition, customers are increasingly looking at captive solutions, to better manage some of the challenges related to the insurance cycle.” Karen Jenner, portfolio director, business development, TMF Group, agrees that there is an increase in more alternative programme structures and insurance placements. “Many European corporations are seeking more cost-effective insurance solutions, including, for example, from US providers, which can then provide challenges from a regulatory compliance as well as an insurance premium tax perspective. This isn’t necessarily leading to a more local approach though, just more innovative placements to provide the levels of coverage required at an affordable price.” It should not be a surprise that global programmes have gained more visibility and interest since the start of the pandemic. “As a society, we are experiencing a very local response to the pandemic and a global awakening,” says Bruno Laval, chief distribution officer, APAC amd Europe, and regional manager, European markets, AXA XL. “From a risk standpoint, global programmes are the perfect tool to address both trends; they give risk managers a view of risk that is global, while allowing them to manage local needs and regulatory requirements.”

When the going gets tough…

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