In Today’s Multinational Business Environment, Companies Seek Agile Insurance Coverage
It’s late on a Friday. The Hartford learns that one of its largest multinational clients operating in France has just leased a new location. They must have a certificate of insurance so employees can enter the building on Monday.
It happens all the time in the U.S., but it’s happening with increasing frequency now outside the country.
For The Hartford, an international insurer with the tools and expertise to address coverage challenges on a round-the-clock basis, that scenario is what service to a multinational client is all about.
“We engaged a team of colleagues around the world with the right tools and specializations to address the coverage issue and get what our clients need on those Monday mornings so there are no delays in operations,” says Kevin Strong, head of Strategy and Global Network Operations for The Hartford’s Multinational Insurance.
It’s critical for an insurer with international customers to be available at all times, since clients often have unusual and often time-sensitive servicing needs. Success in these instances depends on a global insurer’s ability and willingness to work with the client in their time of need – be it day, night or weekend – to make the necessary arrangements in terms of local policy issuance and evidence of insurance.
Why Are Localization Capabilities Critical to a Multinational Business?
In April 2017, The Hartford partnered with AXA Corporate Solutions to deliver local policies.1 They’re issued policies that are specific to the country and line of business where the operations take place in local currency and paid in local currency within the framework of “good local standard”.
As a result, The Hartford can now issue policies in over 150 countries on a locally licensed and admitted basis. We create specialized, solution-oriented teams of multinational program architects and local underwriters, as well as experienced claims and service delivery resources. Together, we collaborate with our clients and broker/agent partners to deliver customer-focused global solutions.
Address a Rapidly Changing Global Regulatory Environment
Governments worldwide are placing increasing demands on insurers and are enforcing existing regulations more intensely than ever before. These increasing regulatory requirements put a heightened burden on businesses operating in multiple countries to comply with specific laws and practices. Multinational insurance programs today must be designed to help customers meet these demands and respond to losses in accordance with the customer’s specific risk finance strategies. This type of focused multinational insurance program used to be associated with large risk management clients. The Hartford’s multinational operation was designed to bring this customized approach to clients regardless of the size of their international footprint - in an efficient and cost effective manner.
“At The Hartford, we have designed a multinational underwriting team that can help agents and insureds efficiently customize products and service delivery to meet the needs of our clients who operate internationally. The level of engagement and delivery capability that we offer has previously been restricted to large corporations with in-house risk management teams. We have built our operation around delivering this high value capability for midsize and small multinational firms in an efficient manner,” says Alfred Bergbauer, head of Multinational Insurance at The Hartford. “At The Hartford, we have designed our product to allow our underwriters and service teams to help agents and insureds develop customized solutions designed to meet clients’ individual needs in an efficient and cost effective manner. This allows us to see past the product view and understand client needs in terms of coverage and discrete elements of service throughout the annual insurance cycle.”
How Has the Market Changed?
International coverage used to be a specialty area of insurance applicable to only a small number of larger clients. Today, it’s a core business line for businesses of various sizes. With an increasingly global environment and a growing level of complexity, the result is a convergence across product lines.
Not long ago, international insurance was focused primarily on property coverage, but nowadays there isn’t a single line of business immune to international claims.
The Hartford offers international businesses a broad selection of insurance coverages to help protect against various claims. Some of the most popular coverages include commercial umbrella insurance, cyber and data breach insurance, and workers’ compensation insurance.
What Are the Challenges Smaller Brokerages Face With Foreign Regulators?
Once coverage is placed, brokers still face the challenge of servicing their customers’ international locations. For large brokerages with global reach, that isn’t as difficult to do because they often have foreign offices that can handle the service aspect. But for smaller and midsize brokerages, typically that degree of service isn’t possible unless the brokerage already has an established relationship with an intermediary with global experience or is a member of a global insurance broker network.
Consider the fact that there are tens of thousands of environmental regulations across the world. That makes it a huge task for agents and their clients to ensure compliance of each of the firm’s local operations across the territories where they operate.
Increasingly, regulators require insurance coverage be provided by local insurers. One major change that both carriers and brokers are facing is the increased attention by foreign governments on whether insurance coverage is provided by admitted (locally licensed and compliant) or non-admitted insurers. Regulators in most countries require a business seeking insurance coverage to procure it from a locally licensed insurer. Thanks to its partnership with AXA Corporate Solutions, The Hartford can now issue policies in 152 countries on a locally licensed and admitted basis. This capability is essential to being able to meet regulatory requirements and service claims in the increasingly litigious multinational environment.
For example, as claims rise, we see how the structure of an umbrella policy, can impact the way claims are managed and how a well a program responds. Imagine a company has a significant loss in a multinational location, and has a primary layer of liability coverage on an admitted basis, yet their umbrella carrier denies coverage because the umbrella policy was written on a non-admitted basis.
In this instance, the policy would essentially revert to an indemnification situation, where the client pays the claim from their own pocket, and is subsequently reimbursed after showing evidence of payment. As a result, the client and the broker are disappointed as this is not the risk finance strategy they originally envisioned or the claims experience they anticipated back when they secured the coverage. This is only one example of why it’s important to work with professionals who have local experience and who understand how to appropriately structure a global program for U. S. companies.
How Can Small Brokers Meet Tax and Regulatory Compliance?
Increased focus on admitted coverage is being driven not only by a desire to monitor and enforce activities of insurance carriers, but also because of potential tax revenues for the governments involved. Insurance taxes in some countries can be north of 25 percent. By encouraging local placements, these countries can more easily identify and collect insurance taxes.
Another challenge facing multinational customers involves the regulatory requirements of the countries in which they operate. Nowadays, insureds, underwriters, and brokers can be aggressively audited for violations of local insurance regulations. In the United States, for example, the Internal Revenue Service is paying close attention to claims payments of overseas entities as these are considered taxable events. And the financial implications for non-compliance are significant.
In response to all of these pressures, multinational companies are opting to build a global program to address property, casualty, general liability, and marine insurance needs. More companies are obtaining local admitted coverage within a master policy to minimize complications. Companies are also creating their own global Directors and Officers Insurance programs, as well as cyber security coverages.
Requirements for higher coverage limits. The market is also seeing requirements for much higher local limits. Not long ago, $1 million of locally evidenced coverage for infrastructure projects may have been enough to satisfy municipalities. Now, more and more municipalities require minimum liability limits of $10 million or more and in some instances, the amounts are unlimited.
Brokers are looking for the whole package – including administrative services. One of the things a large global broker looks for in the global insurance marketplace is a carrier’s ability to put together a viable global program, one that goes beyond the obvious issues of coverage and price. Consider these important program features:
- Global intelligence
- A service network that can respond quickly
- The ability to issue coverage certificates on an admitted basis
- Effective administrative services
Increasingly important is the administrative component and service around claims, specifically:
- An efficient approach to claims
- The right claims personnel dedicated group
- Clear procedures on how they are going to engage or not
- Accuracy and timeliness of claims data
Global carriers servicing multinational clients must demonstrate a real sense of organizational and individual commitment when responding to their clients’ needs.
For global insurers, accountability goes with the territory. Multinational issues can be quite complex, will very likely involve regulatory considerations and will often require the collaboration of the insurer’s local operations across more than one country, to efficiently and effectively resolve an issue.
Global insurers need to:
- Set expectations about what information is needed to satisfy the client’s request
- Clarify the time frame required
- Anticipate and answer relevant questions the client or broker didn’t ask
Proactively address issues such as:
- Admitted insurance regulations
- Cash before cover
- Special application requirements
- Anti-money laundering forms and premium invoicing approaches
When you think about multiple product lines and multiple geographies, complexity is unavoidable. Having the right experience and capabilities to deal with the intricacies locally is critical.
The Hartford expects its multinational client base to continue to grow as more companies move to the global economy and recognize the advantages of doing business with an insurer experienced in the complexities of the international marketplace.
We recently conducted a survey2 which revealed that more companies are headed towards multinational expansion:
- 79 percent of midsize U.S. businesses go outside the U.S. to provide services and sell products
- 94 percent plan to grow their operations outside the U.S. within two years
- 69 percent without physical operations outside the U.S. plan to develop them within two years
- Of those with international exposures, 76 percent expect an increase in international operations
If you make a product (or provide a service) that could find its way outside your home country, it makes sense to look at a global program with worldwide coverage – from a carrier committed to excellence in client service. Because who knows, you may need them at 2 a.m. some Friday morning.
1AXA is one of the largest international insurers in the world.
2 The Hartford’s 2nd Quarter Pulse Survey.