Global Insurance Programs Strategies & Considerations. Harry B. Rowell, III Managing Director February 9, 2016 NEO RIMS Meeting

Transcription

1 Global Insurance Programs Strategies & Considerations Harry B. Rowell, III Managing Director February 9, 2016 NEO RIMS Meeting

2 AGENDA Multi-National vs. Global - what s the difference? Transitional Challenges Local Policy Issuance - Admitted vs. Non-Admitted Technical Stuff Summary

3 Multi-National vs. Global What s the difference?

4 Fictitious Company: DGD, Inc. HQ: Athens, GA, USA Founded 1980; Traded on NYSE; $10 Billion annual sales Manufacturing, Distribution, R&D, and Sales in 34 countries Americas (7): Canada, USA, Mexico, Colombia, Peru, Brazil, Argentina EMEA (16): United Kingdom, Ireland, Sweden, Finland, Estonia, Russia, Germany, Switzerland, France, Belgium, Netherlands, Spain, Italy, Israel, Egypt, South Africa APAC (11): China, Taiwan, South Korea, Japan, Singapore, India, Pakistan, Indonesia, Malaysia, Australia, New Zealand Products sold through third parties into an additional 21 countries Chairman & CEO is Timo Loikkanen (Finnish) CFO is Sarah Marcotte (Canadian) BoD has 9 members: 5 USA, 1 Finland, 1 China, 1 India, 1 Germany 4

5 Question Based on the profile, is DGD, Inc.: Multi-National Or Global? 5

6 Multi-National Company Text Book Definition Operates in more than one country using country-centric cultures Operates as separate businesses located in different countries Uses a decentralized approach to its subsidiaries in terms of operations, resources, marketing strategies, etc. Risk Management Definition Focus is on home country risk financing and insurance programs Little control of coverage placed outside of home country No or little common understand or strategy around risk appetite Often has a Home Country way is the best/only way mentality May place some global coverage from the home country disregarding how that cover may / may not be applied in-country or what the unintended consequences may be of the structure 6

7 Global Company Text Book Definition Operates in more than one country using a single company culture Pursues a unified strategy across multiple national operations Approaches subsidiaries with unified shared resources, processes, marketing strategies, etc. Risk Management Definition Focus on all risk financing and insurance programs in all countries Controls and coordinates all placements Has a defined corporate risk appetite balanced with local appetite Understands and utilizes the best of both Home and Away Implements global programs contemplating issues such as Admitted / Non-admitted rules in each operating country, along with other internal considerations, to deliver No Surprises 7

8 Transitional Challenges I m from Corporate and I m here to help you When in Rome My best-friend s sister-in-law thrice removed Risk Appetite Local Variances Relationships

9 I m from Corporate Risk Appetite Text Book Definitions Risk Capacity: a company s ability to withstand risk when it materializes, while avoiding unwanted effects such as cancelled projects, damage to the company s reputation, ratings downgrades, default or insolvency Risk Appetite: how much and what type of risk the company decides to take. Often the risk quantity is defined in a metric such as Earnings Per Share (EPS). Risk within the Corporate Risk Appetite should be self funded Risk outside of the Corporate Risk Appetite should be Avoided Mitigated Transferred (Contractual, including Insurance) 9

10 Conflict: Corporate vs. Local Risk Appetite Assume $25,000,000 modeled expected losses within all insurance 70% certainty DGD, Inc. Corporate Risk Appetite: as determined by Corporate Executive Management Team and Risk Management $8,000,000 per fiscal quarter / $32,000,000 per fiscal year DGD Oyj (Finland): Employees: 40 R&D, 5 Sales employees, 5 administrative $6,000,000 total annual expense budget and $500,000 sales revenue $4,500,000 salaries and employee taxes $1,500,000 rent, utilities, travel, insurance, miscellaneous other $125,000 income tax ($500,000 profit x 25% income tax) $375,000 profit $10,000,000 insured assets, mostly R&D test equipment in one location Average inventory of $2,000,000 in a separate third party warehouse 5 autos through Hertz Leasing 10

11 Conflict: Corporate vs. Local Global Controlled Master Insurance Program with implementation in Finland Property: issued with $12m limit and a $5m deductible General Liability: issued with a $1m per occurrence / $2m Annual Aggregate limit and a $1m per occurrence matching deductible Auto Liability: policy issued with a $1m Liability limit with a $1m matching deductible, along with no coverage for Physical Damage Has Corporate helped or hurt the Finland operations? What conversations happen? What does Finnish Management do? What steps can Corporate Risk Management take? 11

12 When in Rome Local Variances Many countries have unique mandatory wording Germany: pollution coverage and pure financial loss on GL Unlimited auto liability limits and exclusions in several countries Certain coverage is Compulsory Terrorism: France (GAREAT), Netherlands, Spain (Consorcio), Israel General Liability & Auto Liability in nearly every country Certain coverage provided by government isn t extra-territorial Workers Compensation and Health Benefits in many countries Certain coverage provided by insurers, but with vastly different expected loss levels Workers Compensation / Employers Liability outside of the USA UK increased EL limits based on employee concentration Certain coverage can t be paid for by the company D&O in Argentina 12

13 When in Rome Local Variances In some countries the premium must be paid in advance of the renewal for coverage to be put into effect as of the effective date Japan & South Korea In some countries, rates are regulated, reinsurance access may be controlled by government monolopy all which conflict with the global program rates, premium allocation and implementation Brazil, Russia, India, China for example Minimum premiums to issue policies may be an issue in countries with very small operations 13

14 My best-friend s sister-in-law thrice removed - Relationships Gaining control of insurance placements from the local purchaser to the global purchaser invariably upsets long established relationships External: Brokerage & Insurance Company relationships Impacting their business and personal financial wellbeing Relationship may be connected internally and / or externally Expect push back and resistance to change Internal: roles & responsibilities change for Corporate and Local persons Communication of the Authority & Change is vitally important Authority for change should be endorsed by Executive Leadership Develop communication strategy for internal and external parties Reason for change (cost savings, improved coverage terms & global connectivity) Benefits to Company, both globally and locally Contact and coverage information Roles & responsibilities (internal & external) 14

15 Local Policy Issuance Admitted vs. Non-Admitted - This bed s too hard - This bed s too soft - This bed s just right

16 Local Policy Issuance: Admitted vs. Non-Admitted Admitted Insurance: insurance written by an insurance company licensed to do business in the country or state in which the insured exposure is operating Non-Admitted Insurance: insurance written by an insurance company not licensed to do business in the country or state in which the insured exposure is operating Compulsory Insurance: insurance that is required by law to be issued in-country Every country has differing regulations about which insurance coverage is Compulsory, along with which coverage may or may not be written on an Admitted or Non-Admitted basis In some countries, local company officials can be charged criminally if the Compulsory insurance policies are not in place on an Admitted basis 16

17 Local Policy Issuance: Admitted vs. Non-Admitted 100% Non-Admitted Approach Global policy issued at Home Non-admitted policy is issued by an insurance company in the Home country where it is licensed, covering exposure inside and outside of the Home-country risk domicle Example: policy issued in USA to cover all countries No in-country premium / lowest frictional cost Non-compliant with local law where local coverage is compulsory Tax liability for non-compliance and for repatriating claims payments and may be prohibited (ex. Brazil, India, others) In certain cases, local management can be held criminally liable if local insurance policies are not in place as directed by local law All premium cost is captured in Home country financials / challenges with premium allocation via inter-company charge-back No access to government pools; no local certificates of insurance 17

18 Local Policy Issuance: Admitted vs. Non-Admitted 100% Admitted Approach Controlled Master Program: Directed through a master policy that dictates the terms and conditions that apply to all operations both locally and globally Local admitted policies (underlyers) issued by the overseas office of the master program insurer or fronting company and typically coupled with a master DIC policy (to offset restrictive local forms) Complies with local law; enable premium tax collection (Kvaerner) and claim payments locally; allow for locally allocated premium and tax deductions; give access to government pools; provide local certificates of insurance Can have cost prohibitive fronting charges, especially for smaller operations where minimum premiums to issue policy are greater than the premium generated by the global rate times the exposure Tarriff-rated countries can drive up premium cost vs. the global program rates Premium fully allocated into every country, avoiding potential inter-company charge-back (exception of DIC and excess of loss cover) 18

19 Technical Stuff Policy Territory & Service of Suits Definition of Knowledge Holder Claims Payment vs. Tax / Income Repatriation

20 Policy Territory, Service of Suits & Other Insurance Policy Territory: specifies the geographic area in which the property must be damaged or where injury or damage must occur for coverage to apply Service of Suits: specifies the geographic area where a lawsuit must be filed to be covered by the policy Other Insurace: clause establishing how loss is to be apportioned among insurers when more than one policy covers the same loss Example: Specialty Products Liability Global policy issued in Home country (Non- Admitted ROW) covering events globally but only for suits in US & Canada Specialty Products policy shall have the right but not the duty to investigate and settle such claim and to defend suits filed elsewhere, and would reimburse the Insured for payment of the claim - HOWEVER Standard GL policies issued locally around the world do not have an exclusion related to the Specialty Products Liability policy Competing Other Insurance Clauses: one policy says the other is primary / the second policy says risk to be shared proportionally based on limits 20

21 Definition of Knowledge Holder Issue: Which individuals within the company are defined as who would have knowledge of circumstances which may have occurred which may give rise to a claim being filed? Why: inconsistency of the defined individual, or too broad a definition, could cause problems in providing the insurer timely notice of events that might give rise to a claim. Failure to provide timely notice to the insurer may preclude coverage for the Insured. Examples: Too Broad: any employee of the insured Good: Executive officer means a person holding any of the officer positions created by the Insured Entity s charter, by-laws or any other similar governing document and its in-house general counsel, corporate risk manager and any employee who is responsible for its insurance or claim reporting. 21

22 Claims Payment vs. Tax / Income Repatriation Issue: Many Global corporations organize their in-country Income Tax filings and Transfer Pricing structures to achieve income consistency, efficiencies and / or funds repatriation. Impact: analysis is required of in-country Income Tax and Transfer Pricing structures to ensure: Master Policy structure is designed to direct claims payment(s) within the organization, especially for Business Interruption loss, to the proper part(s) of the organization Local policies are issued with the proper values reflecting the value earned at the local company and not including the residual value earned throughout the rest of the company Local insurance policies and financial accounts are audited by tax authorities, so a mismatch of taxable income and business interruption loss payment can cause questions and raise the taxable income in-country Want to avoid negative surprises 22

23 Summary Many considerations when transforming from a Multi-National to a Global company What is right for one company may not be right for another company Local Policy Issuance the answer is somewhere in the middle between 100% Admitted vs. 100% Non- Admitted Technical Stuff analyze and design the details in order to avoid negative surprises

24 Questions?