When would a corporate client need to have a local policy?

Reto Collenberg and Ian Long of Swiss Re Corporate Solutions discuss the merits and benefits of local policies as an important element of international programmes, and why a customer may choose to use them…

Why would a corporate with an international programme need a local policy?
Reto Collenberg (RC): The structure of the international programme needs to reflect the full understanding of the customer’s activities in each of their locations, and how these relate to their insurance needs. Local policies are required when regulations make it compulsory for the customer to have insurance for it to carry out specific activities at specific locations.

There are a number of reasons why it makes sense to have a local policy in order to provide the appropriate services and as a part of the customer’s risk management strategy.

In what circumstances might a local policy be preferable?
Ian Long (IL): Local policies are a key service touchpoint within international programmes. A customer is likely to want a local policy, even if it isn’t mandatory to do so, if they need certain insurance services that can best be provided by a locally licenced insurer. For example, a country’s regulatory system may require that only a locally licensed insurer can provide loss adjustment services. So, if they wish to have access to those and loss adjustments carried out locally, then the best way to do so would be to have a local policy.

A customer might also prefer a local policy if it needs to prove it has specific cover in place, or if it wants to have the benefits of a local contract. So, for example, to take advantage of a standard or customised wording for the market, or to have a contract issued in the local language or currency. Engaging with a local broker and insurance carrier can also be beneficial for the arrangement of coverage that may fall outside of the programme.

From a global perspective, the local policy can also support the overall risk management strategy of the customer. In the event of a loss, there may be restrictions or implications such as additional taxes when it comes to adjusting and settling the claim on a cross-border basis. The local policy provides direct access to such services. On this basis, the nature and size of the exposure could be a strong driver for a company to prefer a local policy.

Might a corporate client prefer a local policy even in the EEA?
IL: Yes, all the benefits of having a local contract hold true in the EEA too, even when cover may be provided under the Freedom of Services regulation. As well as having a local standard wording for the market, in the country’s language and local currency (where applicable), a customer might also want access to national pools or schemes, such as for natural disasters, which may only be available with a policy from a locally licensed insurer.

Does the decision depend on whether the corporate client is highly centralised?
RC: Centralisation may have a bearing on the customer’s choices but, in our experience, it doesn’t matter whether they are centralised or decentralised. Deciding whether to buy a local policy is more a reflection of the many other factors that also influence their insurance-buying decisions and preferences. Other mechanisms, such as central premium collection and disbursement, can be beneficial for centralised customers in incorporating local policies within their programme.

Can an international programme insurer advise corporate clients on their local insurance needs?
RC: At Swiss Re Corporate Solutions, we highlight the benefits or consequences to our customers of the various possible choices open to them. An important initial consideration is compliance with the appropriate regulations. Once we are comfortable that the programme is achievable in a compliant manner, we then look to work with the customer, and their broker, to achieve the programme that best suits their needs. It is important to find the right balance between cost, service delivery and coverage in setting up the programme structure.

Covid-19 has triggered a rise in economic and political nationalism. Is this a new challenge to international programmes?
IL: It is too soon to be certain about definite protectionist patterns but in general terms, we make it possible to offer the benefits of an international programme, even under circumstances where restrictions of this nature are in place. Through carefully crafted agreements with local insurers and reinsurers in addition to our own capabilities, Swiss Re Corporate Solutions offers the best coverage and service options in a changing environment, while preserving a strong compliance with regulation.

Covid-19 lockdowns have also made it very difficult to adjust claims locally. Has this created problems for international programmes?
RC: Covid-19 and the measures taken by governments to protect their populations have presented us all with challenges. However, creative and innovative solutions, relying on technology, ingenuity and expertise, have enabled us to continue to provide claims services seamlessly during the pandemic.

Is there a role for financial interest clauses?
IL: Due to potential restrictions on the activities that can be undertaken locally in respect of setting up the policy and managing any potential losses, there are drawbacks to financial interest cover. That said, it remains an important element of international programmes. As with any solution, it is important to leverage it where it is appropriate and is the best option for the programme.

Is it generally best to take local cover up to the maximum limit and then top up with DIC/DIL cover?
IL: In structuring an international programme, it is critical to understand the customer’s needs and requirements. An approach such as this minimises the risks in respect of being able to settle a loss locally and ensure indemnity for the local operations. However, it does have an impact on how premium is distributed and handled.

In general, it may be safe to say that local cover up to a limit in line with the exposure is a good proposition, but it is far from being the best in every scenario. DIC/DIL cover is a very important component of cover, but again, no assumptions should be made without understanding the customer’s individual requirements and preferences.

Ian Long is head of international programmes proposition and Reto Collenberg is head of international programmes APAC and EMEA, at Swiss Re Corporate Solutions.