Conducting international business became more complicated after the 2008 recession as country situations and bilateral relationships grew less predictable. Today, political instability, regulatory requirements, currency fluctuation, cybercrime, and environmental/health/disease issues can spark trade risks. Although countless global opportunities exist for corporate expansion, businesses must consider partnering with a knowledgeable insurer that understands the territory and strategically tackles current and future global risks.
Adequate operational insurance coverage across multiple countries requires a keen understanding of the interconnectedness of risks across geographies, compliance with multiple sets of rules and regulations, and management of global and local underwriters, brokers, and service providers. And, don’t forget transparency and superior customer service.
Therefore, international businesses often turn to large global insurers who have strong expertise in underwriting and loss prevention and have in possession innovative risk engineering tools with the ability to manage a broad range of traditional and innovative risk transfer solutions.
Challenges in structuring international programs
Structuring a multinational program for a client’s specific geographical and business needs includes unique risk calculations and premium allocations. Global risk managers have to collaborate with local/regional risk managers to understand the dynamics of operating in the region.
Insurance requirements, limits, coverages, legal liabilities, currency valuations, language variations, local customs, and political and legal considerations can all create unknown exposures and pitfalls. It gets further complicated when revenue sharing with brokers, network partners, and corresponding taxes come into the picture.
Consider these determinants of premium allocation:
- Major and minor lines of businesses
- Rating methodology
- Risk factors
- Claims’ experience.
- Premium reserves
- Insurer and reinsurer taxes
- Exportability of premium from local to non-admitted (master) policy
- Local premium consistency with local underwriting practice
- Country-specific regulated rates.
The difference in conditions and the difference in limits’ clauses is a common feature of multinational corporate policies – attached to group-level insurance – to cover gaps in coverage for subsidiaries in overseas jurisdictions. These clauses are widely used but require risk managers to stay aware of limitations and pitfalls.
Insurers must also carefully set allocations of difference in conditions (DIC) and difference in limits (DIL) to appropriately cover the client and comply with the local policy’s country-specific guidelines. Most multinational companies see DIC and DIL clauses as a silver bullet for fixing their subsidiaries’ local insurance needs. However, the clauses are significantly limited, which can leave subsidiaries underinsured or unable to cash in when it is time to claim.
Generally speaking, a multinational policy includes the master policy, which provides DIC for the policy terms and conditions not met by the local policy. It also provides DIL for extension of the limit of claims. The master policy, together with local policies, cover the insured appropriately for loss exposures in global markets. Please be aware that DIC and DIL are not allowed in some countries.
Insurers need a next-generation international platform
There are several policies, claims, and billing administration systems in use by different regions in a typical global insurer technology landscape. Within an international policy, insurers must book multiple skeleton policies in the respective region’s policy administration systems. Managing local policy details in multiple applications can be inefficient and prone to data discrepancy issues. Therefore, the time it takes to onboard a client into international program can take much longer. Further, First notice of loss and handling and managing claims that can arise in a foreign country can be tedious, if they are handled across disparate non-integrated systems. All of this affects the customer experience.
Therefore, global insurers require a next-generation modern solution that leverages their existing investments and ties together with their network partners, brokers, and agents. The goal is to efficiently structure and manage a global policy while providing international clients self-service capability to manage and view their global risks and coverages in one place.
If you would like to discuss how global insurers can design a modern application for international programs, please contact me via social media.