Insuring Multinational Business, Exceptionally
—With nearly 200 sovereign nations, creating and managing global insurance programs can be a big challenge. That is one reason that XL Group has established a Global Programs Center of Excellence. Alfred Bergbauer, head of multinational casualty in North America, Thomas Stamm, chief underwriting officer of international casualty and Kevin Strong, director of global programs and networks, who leads the center, explain how XL Group is helping brokers and clients cope with global complexity.
What are some of the major trends in global programs now?
Strong: We’re seeing four key trends in global programs right now. One is an increase in requirements to localize insurance coverage. Twenty to 30 years ago, a single master policy might have sufficed, but that is no longer the case. Regulators today want to see local security on the ground, and in many cases with increased policy limits. Another trend, which we expect will accelerate, is the localization of coverages crossing product lines. Many clients are seeing a need to localize not only property but also directors and officers’ liability, financial and professional lines, and even aviation, for example. Increasingly, clients are expecting covers that meet the risk needs of their local operations. Still another trend is a growing awareness of exchange rate risk and the possible erosion of local limits if a significant swing occurs in exchange rates. This risk is real even for well-established currencies, such as the U.S. dollar and the Australian dollar. Lastly, more clients are asking, “Do we have cover where we need it? Are we spending more buying globally than at the local level?” Initial cost/benefit analyses might suggest that a local approach is better, but ultimately, to have an effect on total cost of risk requires a global program.
Stamm: Today’s regulatory and tax climate is rapidly changing. The expectations and requirements of tax bodies, regulators and rating agencies are growing. Global program providers need to find ways to function within an expanding set of regulatory and risk issues. This includes compliance with the letters of the law, alignment with local regulations and validity of the broker’s licenses in the markets covered by a program. Further drivers are clearly globalization and the advance in technology. Companies are ever more interconnected around the globe. With supply chains spanning several countries, every link needs to be examined.
Bergbauer: There are compelling business reasons for global programs, not least being centralization, a single-source underwriting team, consistency of coverages and cost. Against this backdrop is that insurance regulators and tax regulators are paying greater attention to compliance with their laws in their home countries. There is more auditing of insureds, underwriters and brokers, looking for violations of insurance regulations. In the United States, for example, one of the biggest changes is enforcement of regulations. The Internal Revenue Service is paying attention to claims payments for overseas entities as taxable events, and the financial implications for non-compliance are greater.
How does XL manage to keep track of regulations and changes globally?
Bergbauer: There are 198 sovereign nations around the world, so there’s a lot of complexity. We are not tax advisors, but we need to know how to apply tax laws. XL partners with expert resources on tax, regulation and law, and we maintain a proprietary database as well, which helps us provide clients with up-to-date information.
Strong: Another strength of XL is that we have boots on the ground – colleagues around the world in many of the same locations where clients are. We actively scan over 100 sources of tax and regulatory data on a weekly basis. And in nearly every country, we have owned operations or we partner with others that do.
How does the Center of Excellence help XL with global programs?
Bergbauer: We established a Global Programs Center of Excellence to recruit and staff a team to work with all aspects of XL’s capabilities – from underwriting to claims to engineering and more. The Center of Excellence team is there to help XL structure global programs and be responsible for global program implementation. With over 30 years’ experience writing global programs the Center of Excellence brings together diverse cultures and global expertise to consistently deliver the best multinational solutions to our brokers and clients]
Strong: Our mission through the Center of Excellence is to support XL’s underwriting community with account prospecting and account maintenance in global programs, as well as to provide structural support to the global industry network and enhancing service quality and governance. Our group transcends product lines and support systems. We’re about enabling effective communication and collaboration in real time and doing it efficiently.
What kinds of clients benefit from using global programs?
Strong: These days, if you make a product that could find its way outside your home country, it makes sense to look at a global program with worldwide coverage. If it can move, it can benefit from a global program. That said, XL achieves great results with clients that are deeply operationally oriented. They take feedback from us about their program and incorporate it into their operations.
Bergbauer: Size is no longer an absolute criterion for considering a global program. For example, today you can be a $100,000 company and source product overseas or sell product overseas. For larger accounts, there are other things to consider, such as mix of scope and size of operations and financial structure. If you’re operating in a litigious market, you need a financial presence. Even in mainland China, third-party injury lawsuits are happening. At XL, we have a global claims coordinator for every client. That helps clients with global programs to understand implications as they occur, which is important because the potential impact on brand and image – and the bottom line - can be profound.
Stamm: An insurance structure involving a master policy in one country with one or more local policies issued in another country or countries, gives multinational companies appropriate and relevant cover in each jurisdiction where they operate. But global programs are much more than a policy wording. Information about different markets’ tax and regulatory landscape, issuing policies in time so that projects can commence and products be delivered, and handling claims efficiently across borders are all part of effective global program services. Of the 1700 global programs we lead, approximately one third already have one or more policies in Asia and/or Latin America. The multilatinas, Latin America’s multinational companies, for example, are clients who can benefit greatly from a global program. Even though multilatinas are growing quickly*, they are not very global yet and are hardly represented among the emerging markets’ 25 largest companies. One reason for their still limited globalization is a risk-averse culture. Yet progress and moving into new markets and territories can be risky business. And as multilatinas move to play a greater role in the global market, protecting their assets will become increasingly critical. Collaborating with a global, experienced insurer with strong risk management capabilities who knows the local market conditions can be of great value to expanding companies.
Why do companies choose XL for multinational casualty programs?
Stamm: At XL Group we have more than 30 years of experience in writing global programs. Through our global network of offices and fronting partners, we can issue local policies in over 140 countries worldwide for Property, Casualty, Environmental, Financial, Marine and Specie exposures. With last year’s creation of a Global Programs Center of Excellence, we brought together this expertise in one global team. Our own professionals closely collaborate with external experts to drive best practices and standardization to effectively deliver tailored, compliant programs. We use one single global IT Platform which has been designed to our specifications to meet the complex administration requirements of global programs. Our clients and brokers benefit from an excellent service, global technical expertise and deep local market insight.
Bergbauer: At the tip of the iceberg is a desire to have a high degree of certainty around the execution of insurance and contracts. Many XL clients are contractually required to provide evidence of insurance to vendors and governments, for example, and if they can’t show evidence, then they can’t transact business. XL is an active player in global programs. We are one of the top three underwriters of global casualty programs, and we’ve had a strong presence in Europe for more than 25 years. One of the things that set XL apart is that we’re service-oriented, with a client-centric culture. A lot of carriers are good at looking at a portfolio level. Around the globe, we have a very deep culture of service and looking at each client so we can rally XL’s resources to help that client. We define risk parameters with our clients and align ourselves around them. Why clients choose XL really comes down to the risk. We’re in the large, sophisticated risk business, and clients appreciate that XL offers the opportunity to be sensible and creative in approaching their risks.
Strong: Historically, XL is known as a writer of really tough stuff. But we are also a substantial writer of moderate risks. Through our culture and Global Programs Center of Excellence, XL is taking knowledge and applying it to broader sets of risks to benefit our clients.