Multinational companies face growing challenges as their methods of doing business expand and become globally interconnected. Yet the drive to operate internationally stands for good reason.

The very nature of operating across borders connects businesses to a broader consumer base and enables them to employ unique talent. But in order to succeed, multinational organizations must remain vigilant to evolving regulatory requirements and economic trends worldwide.

Elke Vagenende, Global Head of Multinational, AIG

“You need to coordinate your insurance and compliance programs in all the countries you operate in. A large part of successfully expanding operations comes back to navigating global complexity,” said Elke Vagenende, Global Head of Multinational at AIG.

“The world is connected now more than ever,” said Jon Hancock, Chief Executive Officer, International General Insurance at AIG. “These trends toward inter-connectedness continue to add complexity to a multinational’s compliance program, and to the insurance program necessary to protect its global exposure. This makes it imperative for multinationals to stay on top of any changes.”

Here are just four of the more significant trends impacting the multinational landscape and how companies looking to, or already operating across borders can better navigate the corresponding risks.

1) An interconnected world adds complexity to multinational operations.

Michael Price, CEO for North America, General Insurance, AIG

The world has become more complex, even in just the last few years alone. Technology has not only made room for instantaneous connection but also opened the door to cyber breach or malfunction. Supply chains have a longer reach, bringing in new product lines yet remaining vulnerable to disruption and delay. These newer exposures, coupled with the nature of operating in multiple countries, make it harder to pinpoint risk areas.

“Sometimes a client might realize too late that their operations are more global than they initially thought,” Vagenende said.

This, she explained, is because even day-to-day operations can beget complexity. Navigating and remaining attuned to changing local regulation, moving money around and adjudicating claims in local currencies are just a few of the added layers to contend with.

One example that truly demonstrates just how complex the business effects caused by the multinational landscape can become is Brexit.

“After leaving the European Union, local policies for British businesses operating in European countries had to change,” said Michael Price, Chief Executive Officer, North America, General Insurance at AIG. “The companies faced geopolitical changes and a layer of protectionism — these added risk profiles that weren’t as prevalent before Brexit. That all created new complexity that they needed to solve.”

Price added that solving these hurdles was not done overnight, nor was it done alone. Having an insurance partner that understands local requirements and market practice and monitors global disruptors, like Brexit or even the COVID-19 pandemic, is essential when confronting such challenges.

2) Legal landscapes are always changing — so too should compliance and insurance programs.

Jon Hancock, CEO for International General Insurance, AIG

While a changing legal landscape isn’t a new trend, it produces ongoing impact to multinationals no matter where a company operates. Navigating differing markets and remaining compliant with local regulation is imperative to running a smooth operation.

Geopolitical, societal and environmental factors remain fast-changing globally. Keeping track of and managing expanding regulatory regimes and increasingly interconnected economies requires a hands-on approach.

“Multinationals have to understand the compliance aspect and the legal landscape in order to successfully implement local policies,” Vagenende said.

Any shift in law may have a company wondering about the implications for policy wordings or how their business is run locally. An insurance partner that specializes in monitoring these changes makes the process feel less like a rush to comply and overall, more seamless in strategy.

“We’re here to be the knowledge champions,” Vagenende added. “AIG releases bulletins with great frequency in terms of changing legal landscapes, commercial impact and corresponding operational changes. Our long-standing, ongoing view on local regulation provides us with unique insight on actual impact.”

3) Improved data quality and management enable both insurers and multinational clients to better manage risk.

Another trend multinationals are finding advantageous is an abundance of data. Thanks to technology, these clients and their insurers are each collecting more high-quality data to monitor processes and strategies.

The challenge comes in making that data actionable. How are multinationals actually aligning data management with their practices?

“There can be a million different data points to review,” Vagenende said. “Risk management data, legal compliance data, market data — it’s one thing to collect it. It’s a whole other element to analyze and utilize this data to your advantage. But when we do, it’s another risk management tool to maintain multinational programs at peak performance.”

Further, Price said, “Having an insurance partner that also has access to such a database can be an added benefit. AIG, as an example, has over one million regulatory and market data elements used by our multinational underwriting, claims and operational teams to expertly design, implement and service our multinational  programs.”

4) More multinational companies are turning to captives as an option.

The traditional insurance market is hardening; tightening pricing, terms and conditions has led many multinationals to utilize captives to manage risk. A.M. Best reports the number of captives worldwide to be somewhere around 7,000[1].

“We see two trends within the captive space. The first is an increase in participation and risk retention, predominantly in response to market trends. Second, multinationals are turning to captives to fill gaps for coverage not available to them in the traditional market, and also taking on new risks within their captives,” Vagenende said.

Captives, both Price and Vagenende cautioned, are not something multinationals should jump into lightly.

“Captives are complex. There’s a data management aspect to them as well as a risk management element. It goes back to the complexity of risks growing on a global scale — increases in cyber, geopolitical changes — all of that,” Price said. “You want to have a partner that understands that complexity and can manage through the captive process.”

AIG offers a wide range of programs for multinationals seeking a captive option, from single parent and group captives, to segregated cell and rent-a-captive structures. Clients without a captive may experience many of the same benefits through participation in one of AIG’s sponsored cell captive facilities.

“We continue to invest in all our captive capabilities so that multinational partners can find what they need when working with us,” Price said.

Global Reach Requires Meaningful Global Knowledge and Understanding

Partnering with the right insurer is critical to successfully navigating the complex global landscape presented by these trends.

With a global network that serves clients in over 215 jurisdictions, backed by more than 400 dedicated multinational experts, AIG is one such insurance partner. Clients can rely on AIG’s decades of experience in the multinational space, accumulated in-depth knowledge of local markets and practices, and product breadth and ingenuity to meet virtually any risk challenge.

“Our service model is designed in such a way that our clients have the data, tools, and local expertise necessary to successfully expand their global footprint,” said Price. “Our experience, knowledge and network truly differentiate AIG.”

As an organization that’s been in business for over a century, AIG continues to invest in the capabilities that make it an international powerhouse. The end goal is always operational excellence — both in product and service offerings, to help clients meet their goals.

“We were an amalgamation of regional insurance companies that fulfilled a multinational promise,” said Price. “We’ve transformed to become a truly global delivery system through digital capabilities, ensuring knowledge, resources and unique insurance assets are being shared in real-time in one cohesive package.”

To learn more, visit: www.aig.com/multinational.

[1] http://www3.ambest.com/captive/

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with AIG. The editorial staff of Risk & Insurance had no role in its preparation.