Freeing Cargo From Captivity
Kraft and Heinz announced their merger in the spring of 2015, around the time of Heinz’s May 1st renewal. The impending marriage spurred Senior Manager of Corporate Risk Management Carlos Dezayas to rejigger his insurance portfolio ahead of the acquisition’s finalization.
“We were looking for the most efficient structure for the combined program so that everything would be in place on day one of the merger,” Dezayas said.
He found that the Kraft Heinz cargo program was sorely in need of an overhaul.
“The cargo program was run through our captive, with a $25,000 retention held at the business unit level and a $225,000 retention at the captive. The problem was that we only had captive licenses in the EU, U.S., Canada, Australia and New Zealand,” he said.
This meant that import/export operations from countries such as China, Japan, Korea, Costa Rica and Brazil were vulnerable. Whenever a claim breached the local deductible but not the captive deductible, it was difficult to get cash into those countries to make claim payments; large cash infusions were subject to a variety of local taxes.
Heinz also could not collect premium from the unlicensed countries.
“Essentially we were overcharging the business units in the licensed countries to make up for the fact that we could not charge any premium from the unlicensed countries,” Dezayas said.
Working with Marsh broker Herman Brito, Dezayas removed the cargo program from the captive structure, retained the local business unit deductibles and established locally admitted policies written by AIG.
The move was atypical — most companies don’t move from a captive to a fully insured plan — but it paid off.
“A year and a half down the road, this seems to be a more stable structure for us,” he said.
“It has allowed the business units to be comfortable knowing we have the coverage in place and that their claims will be paid. It also creates more visibility and transparency across the entire program, which is what senior management expects from their insurance portfolio.”
“[The new program structure] has allowed the business units to be comfortable knowing we have the coverage in place and that their claims will be paid.” — Carlos Dezayas, senior manager, corporate risk management, The Kraft Heinz Co.
In addition to increasing efficiency, the new non-captive structure also means Kraft Heinz can collect premium from every business unit while shifting administrative and claims management expenses away from the captive.
Brito, assistant vice president at Marsh, and a 2016 Power Broker® winner, praised Dezayas for his willingness to tackle a project outside of his area of expertise.
“Carlos came from a strong insurance background, but not particularly in marine. When we were undergoing our renewal strategy, he quickly familiarized himself with marine terminology and set out to learn the latest and greatest in the marine world — not an easy task,” Brito said.
“He took the time to walk through the policy language with me and ask the right questions. He was willing to put his trust in Marsh when we discussed changing the captive structure for cargo and was always extremely responsive.” &