Varying regulations, standards and legislation in countries across the globe can present complexities to risk managers of multinational companies who are structuring and managing global risk programs. In fact, taking control of risk in an organization with international locations may be among the top challenges of risk managers.
Multinational companies have to manage a number of risk exposures wherever they place their footprint, and varying legislation and regulation across the globe introduces further complexity.
There are a number of factors beyond an inventory of exposures that influence program design, including:
- Extent of International Operations: Companies whose exposures consist only of export sales, project consulting, warehousing or the occasional executive trip/travel will have different program requirements than companies with more complex international operations, such as sales, distribution or manufacturing facilities.
- Insurance Requirements: Regulatory issues fall into two broad categories: Compulsory Insurance and position on Non-Admitted Insurance.
Developing a global insurance program includes decisions based around particular objectives and constraints for each firm. There is no “one size fits all” arrangement. An in-depth discussion and collaboration with an insurance broker who has a strategic network of global partners on the issues affecting program placement and management is important to enable companies to make informed decisions on the optimal program design.
As global programs continue to mature across multiple lines of insurance, the emphasis will move from simply addressing fiscal and regulatory issues to addressing operational concerns as well.
Seven Dimensions of Successful Program Design
While compliance is at the heart of many program structure decisions, the real objective of multinational program management is to perform in support of multinational business strategies. Different organizations will have their own key performance indicators, but ultimately a successful multinational program is designed to avoid and manage any issues that can have an adverse business impact—and to support a company’s overall strategy and operating model. That requires involvement from all stakeholders. To help shift the focus to performance—and develop a more optimal global program—companies should focus on these seven core dimensions of success.
Optimized programs consider a variety of inputs—corporate objectives, risk characteristics and appetite, compliance, market offerings, insurer relationships, and available solutions. The key to success is balancing all of these inputs in a way that strengthens the program. For instance, overemphasizing corporate objectives without an appropriate focus on risk can lead to problems. By involving different stakeholders, assessing the weight of the inputs, and building balance into the program, a multinational program will not only be more compliant but ultimately more successful in supporting international business strategies.
Program designs should be based on a thorough examination of exposures. For multinational property, these should include a review of cross-border business flows and processes, addressing critical issues such as contractual obligations, interdependence and contingent clients’ exposure. With changing carrier appetites on exposure and the increasing request to remove risks from multinational controlled programs, these issues become even more critical to ensure that any changes in program design that adversely impact the ability for the program to address these exposures are clearly communicated and understood. Outside of the United States, claims consciousness is generally lower; however, internationally, there has been an increase in litigation in areas such as Products, Pollution and Directors & Officers Liability. Less obvious risks include new or increased exposures such as Executive Travel, Environmental Liability, Cyber, Trade Credit, Terrorism, Political Risk and Kidnap & Ransom. Wherever companies place their footprint, they must examine all risks from the protection of assets and revenue to liability of others. Claim consciousness is generally lower outside the US. However, litigation is increasing in certain areas, including:
- D&O Liability
Less obvious risks include new or increased exposures, such as:
- Executive Travel
- Environmental Liability
- Trade Credit
- Political Risk
- Kidnap and Ransom
Wherever companies place their footprint, they must examine all risks from the protection of assets and revenue to liability of others.
It’s critical that program designs are comprehensive, including coverage as required, available and appropriate to address those exposures across multiple lines of insurance. The discussion of coverage should involve whether it is arranged on an Admitted or Non-Admitted basis. Admitted coverage is no longer limited to Property & Casualty placements but, depending on jurisdiction, can also include placements traditionally written on a Non-Admitted basis, such as:
- Errors & Omissions
- Excess Liability programs
International compliance requires an in-depth understanding of, among other things, regulatory, tax, and contractual concerns in every market. This requires expertise and knowledge at the local level as well as a broader understanding of comprehensive compliance across the entire program. Program designs should factor in a number of considerations, including contractual obligations and regulatory requirements governing permissibility of Admitted /Non-Admitted insurance, compulsory coverage, and tax.
Program structures should be tailored to minimize coverage overlaps while ensuring program responsiveness and compliance where possible. All structures should provide clarity on how multiple policies will respond in the case of a claim. In our experience, global programs are strongest when the structure reflects the company’s operating structure. For example, organizations should look at how centralized control and decision making takes place, and what geographic responsibility and oversight currently looks like, then ensure their program structure mirrors that. The structure should also reflect the organization’s risk, finance, tax, and management objectives, in addition to other objectives important to the organization.
Program design must also be efficient in program cost, execution and administration. Evaluating the efficiency of the current program can help companies identify efficiency issues, whether it involves overpaying or spending excess time and resources on administration. Ongoing assessments can help ensure the program is cost-effective while also streamlining execution and administration.
An effective global program involves multiple stakeholders—which means that effective communication is critical. Companies should develop a comprehensive communications plan to ensure all parties have necessary information and that the program reflects business and risk management objectives—which may mean bringing in different parties on an ongoing basis. Companies should also be cognizant of communicating with local brokers, who can provide insight at the local market level. The stakeholder conversations should be wide-ranging, including tax/finance, risk management, logistics, facilities, and human resources, as well as other areas depending on an organization’s operating model.
Multinational companies that build on these seven dimensions of success will be able to bring insurance buying processes into alignment with overall corporate objectives, optimize insurer relationships and implement a leaner, more efficient risk management program. The key is focusing not only on compliance but also on performance—elevating the role of risk management and adopting strategies for growth.