Global insurance programmes are undoubtedly affected by macro issues such as the state of the insurance market, capacity and pricing, as well as protectionism, global and national regulations, trade sanctions and the like. But programmes are also complex, detailed and have their own distinct issues in terms of implementation and operation, writes Tony Dowding
Macro issues are discussed extensively in the media, various publications and numerous conferences and seminars. But there is less of a focus on the nitty-gritty, nuts and bolts of global programmes, which is perhaps why the recent virtual conference run by Commercial Risk, ‘Global Programmes: implementation and operation’, was attended by 800 delegates. That, and the fact that corporates are struggling with a global hard market, capacity withdrawals and emerging risks.
Sessions on topics from premium allocation to retention-setting, documentation and collection of information to resolving central versus local conflict, tackled the real issues affecting global programmes, with panels featuring risk managers, brokers and insurers.
Hard market responses
Of course, if you have risk managers and insurers on the same panel, then the hard market is obviously going to lead to straight-talking from all sides. The conference heard from risk managers that while a recalibration of the market may have been needed after a lengthy soft market, the lack of differentiation, and little recognition of risk management efforts, has eroded trust with insurers.
Alexander Mahnke, CEO insurance, Siemens, and chairman of the German risk manager association GVNW, said: “We want our insurers to earn money with the business they do with us. But doing this in an unsustainable way, not making profit over a long period of time, is not something that is good for the market, or insurers, and because we believe in long-term relationships, it is not good for us either, because it creates erratic behaviour.”
Franck Baron, group deputy director, risk management and insurance at International SOS and chairman of Parima, said the problem is the lack of differentiation, and a lack of recognition of the value of long-term commitments, and a lack of value given to risk management.
Insurers pointed to 14 years of rate reductions and an acceleration of losses, but they did acknowledge that insurers should be valuing differentiated risk and differentiated risk management.
The result of the hard market has been a growing interest in captives and other alternative risk transfer mechanisms. Corporates are also increasingly turning to captives as part of the solution to the problems of finding insurance cover for emerging and difficult risks, particularly financial lines and cyber risk because of the capacity crunch.
“Insurance isn’t the panacea for everything that is happening at the moment. Some of the risks are generally uninsurable by their nature,” said one insurer. A risk manager agreed: “Insurance is not the miracle solution for us, it is just a tool.”
Steve Tunstall, general secretary, director and co-founder of Parima, noted that a number of companies are specifically setting up small protected cell companies, with relatively low cost. “And they are basically doing it as a holiday,” he explained. “So if insurers don’t want to sell D&O cover to a company for a couple of years, then they will go and do it themselves in a cell captive until the insurer gets back to the pricing it is used to.”
One issue highlighted by the conference is the need for compliance. But this is becoming more and more complicated for multinational buyers, as protectionism is on the rise. Praveen Sharma, global practice leader, insurance regulation and tax at Marsh, said the laws change regularly, with a clear trend for protectionist and “insular” regulations around the world. He said the rules are therefore “not fit for purpose” for multinationals, creating “angst, anxiety and confusion” among insureds.
The conference heard that regulations are struggling to keep up with the rapid change in risk transfer solutions on offer. New products and covers with global application are being developed in response to emerging risks, but regulators find it hard to adapt regulations. At the same time, it is clear that regulators are focused on policyholders in their own territory rather than multinational organisations.
Communication and risk appetite key
On the nuts and bolts of global programmes, the conference panellists were generally in agreement that communication and collaboration were the key words for a global programme to be implemented and operated successfully.
This might be between the multinationals’ headquarters and the local units, where it needs to be a two-way dialogue to ensure that conflicts can be resolved, especially in relation to retention levels and premium allocation. Or it might be between the insured and the insurer, particularly when it comes to documentation requirements and the collection of data.
With the hard market, the issue of retention levels has taken on even greater importance. Risk appetite has attained a much greater importance, and the issue of whether retention levels are putting the company at risk. The conference heard that risk appetite is key when it comes to setting retention levels.
And higher retentions can be used to encourage loss prevention and risk management, as the company and the units have “skin in the game” as one insurer put it. But the conference also heard that different risks may have very different acceptable retention levels, for example, auto versus natural catastrophe. And there appears to be growing use of aggregate stop-loss covers to support the central retention level in the event of an accumulation of smaller losses.