How can a risk manager address global compliance while maintaining a global insurance program that accommodates international expansion with minimal frictional costs?
The new playing field for multinational risk managers is marked by changing geopolitical headwinds, protectionism, constant regulatory scrutiny and enhanced data privacy standards. Various geographies, including Latin America, the Middle East, China, India and Russia are adjusting to new market norms that include increased insurance taxes, tariffs and cash-before-cover requirements. We’re also seeing greater antitrust scrutiny on mergers and acquisitions as well as global mobility and rising benefits costs.
Unfortunately, with increased local regulatory scrutiny, risk managers can no longer rely on the practice of simply purchasing low-cost worldwide non-admitted policies for risks such as marine, general liability, umbrella liability and directors and officers liability. Instead, to address the new regulatory pressures, multinationals are beginning to purchase more underlying admitted policies, which also have the benefit of providing more local protections for employees and subsidiaries. In addition, reliance on “good local standards” is being replaced by a desire for more manuscript policies and enhanced coverage features such as financial interest clauses, product recall, financial loss, terrorism and employer’s liability.
Meanwhile in Europe, the Brexit deadline approaches leading many insurance companies to reposition their Freedom of Service (FOS) infrastructure to locations on the European continent from the U.K. Accordingly, risk managers must decide how to structure their European insurance purchases: continue with a FOS approach or consider a policy purchase per country.
We advise risk managers with these concerns to consider the controlled master program approach: purchasing both a U.S. master policy and local underlying policies with the same insurer. This strategy makes local claims defense and loss payments feasible and enables the organization to transact business as a good corporate citizen and to abide by local certification, contractual, lease or loan requirements. While this approach is highly compliant and customizable, it does slightly increase frictional costs and requires strong risk management support.
Each organization must evaluate where they wish to be on the compliance/cost continuum and factors beyond insurance affect these decisions. Do you have the tools you need to make an informed decision and understand the potential consequences?
Tanja Maffei Chan is Global Advisory Leader of Willis Towers Watson’s Global Services and Solutions group.