Risk Focus: Multinationals

Prevent Your International Business from Losing Millions with a CMP

As companies seek international business opportunities, demand for controlled master programs has never been greater.
By: | June 1, 2018 • 5 min read

Globalization and the growth of ecommerce resulted in more U.S.-based companies expanding and doing business overseas than ever before. However, the ever-changing raft of local tax and insurance laws and regulations multinational firms have to contend with means demand for fully-functioning controlled master programs, or CMPs, has never been greater.

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A CMP combines a global master policy, usually issued in the country where the firm is headquartered, with local admitted policies in the various countries where it operates to provide umbrella coverage.

“Gone, seemingly, are the days that large enterprises are confined to only their domestic market,” said John Osterhagen, regional practice leader, Allianz Multinational, Allianz Global Corporate & Specialty North America.

“There is also an increasing trend for smaller corporate entities needing to have multinational program solutions as they also become more global.”

While being the lead carrier on such a program may initially seem to be an attractive proposition to many insurers because of the premium volume it can earn, the risks involved are extensive.

Carriers therefore need to have a sophisticated knowledge of local laws and regulations in the countries their clients operate in as well as a granular understanding of those businesses and the operations they’ll insure.

Experts say few carriers have the true capability to pull this off successfully and profitably. Those who do though, can reap the rewards.

“There are fewer carriers today with the capability of pulling together a program of this nature than there were 15 years ago,” said Nick Batten, vice president of global services, FM Global.

“That’s why it’s more imperative than ever to choose an insurer with an appropriate network and controls in place with consistent underwriting, form and claims handling.”

Increased Demand of Controlled Master Programs

Increased regulatory scrutiny requiring companies to conform with local tax and insurance laws, and the threat of penalties from governments and local authorities, drove many multinationals to turn to controlled master programs as a solution.

Nick Batten, vice president of global services, FM Global

Added to that has been the escalation of bilateral and multilateral agreements among regulatory bodies with shared borders, which further tightened the net on foreign firms.

Osterhagen said the need for controlled master programs is also driven by demand from companies for specialty coverage, including cyber, aviation, product recall, equipment installation and terrorism/political risk. Additionally, there has been increased client awareness of compliance and taxation issues, he said.

“Controlled master programs are the industry standard in being able to meet these client needs,” he said.

“They allow for both uniform cover and central control, while also providing the flexibility in local underlying policies to respond to local rules, insurance law, taxation, market standards and language.”

Carriers See Lead Advantages

Being the lead on large corporate lines programs enables the carrier to better influence policy terms and conditions as well as to expand its risk share when opportunities present themselves. They have a greater chance of being profitable with a wider spread of risk.

Steven Haasz, global chief operating officer, AXA Corporate Solutions Assurance

“From a property standpoint, the greater scale and geographic diversity of risk, the better for the carrier,” said Alfred Bergbauer, The Hartford’s head of multinational.

“If, for example, you have 20 locations, then chances are not all 20 locations are going to burn down at the same time.”

Taking the lead also enables carriers to develop a long-lasting relationship with the client, which can reap greater rewards, said Steven Haasz, global chief operating officer, AXA Corporate Solutions Assurance. It also allows them to have a greater role in setting the agenda, he said.

“By being the leader, you have the ability to help influence the [controlled master programs’] terms and coverage to meet the client’s needs,” he said.

“That way you can set the tone and agenda for how you want to shape the program for them.”

From a client’s perspective, having controlled master programs also enables them to achieve greater consistency across their global operations.

In order to do so, though, the client needs to work with their insurer to find a compliant solution across multiple countries that provides tailored coverage, customized claims handling and pricing consistency.

Controlled Master Programs and Their Challenges

But leading a controlled master program comes with its own host of challenges, not least the complexity and costs involved in managing a chain of third parties, from brokers and reinsurers to claims adjusters and risk quality engineers. It’s critical for carriers to factor in these expenses in pricing and to manage that network accordingly.

While many of these costs can be addressed through charging global fronting fees, ceding commission from retrocessionaires or pricing premiums adequately, the insurer needs to have a full understanding of all the above products. The carrier also has to balance its needs with those of the client.

Because every market is different, carriers need to intimately understand and keep abreast of the latest changes and developments in that market in order to remain compliant. They must also have a detailed understanding of the industries they are writing insurance for.

“If you have a client who deals in a highly volatile and risk-sensitive product, it may not be … the best candidate to insure. But when you look at the manufacturing methods used, quality assurance and recall methodology in place, it may actually be a risk worth writing.” — Alfred Bergbauer, head of multinational, The Hartford

“This is a real determiner of whether an insurer can achieve and maintain profitability,” said Allianz’s Osterhagen.

Different occupancy structures, fire suppression standards, supply chain variations and special perils are all areas that need to be looked at closely, Osterhagen said.

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Lou Capparelli, executive vice president, Chubb Global Casualty, said any changes must be identified and addressed by the underwriter, the brokers and the insureds. These can include changes to tariffs, tax regimes, premium exportability and the claims environment, he said.

Carriers also need extensive knowledge of the individual business they are underwriting, said Bergbauer.

“If, for example, you have a client who deals in a highly volatile and risk-sensitive product, it may not be on first impression the best candidate to insure,” he said. “But when you look at the manufacturing methods used, quality assurance and recall methodology in place, it may actually be a risk worth writing.”

AXA’s Haasz added: “At the end of the day, you need to understand your client’s business fully and what they are trying to achieve from their insurance program and how you can address those needs in the multiple countries they operate in.

“You can only accomplish that by working closely with the client, brokers and partners in your network across these territories to deliver the right solution.” &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Insurtech

Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”

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“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.

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“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?

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“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.