Risk Focus: Regulatory

Demand for International Business Insurance Increasing

Shifting strategies are influencing the way multinationals design their global programs.
By: | December 14, 2017 • 6 min read

In this increasingly globalized world, more and more companies are expanding their boundaries, trading across different time zones and borders and moving into new territories.

Many have already built up an extensive network of offices, operations, assets and personnel across the globe.

But they also face a multitude of challenges in establishing and maintaining international trade.

Nick Batten, vice president of global services, FM Global

These can include differing business customs and cultures, political and legal environments, tax and insurance regulations, languages, geography and climate, not to mention cyber attacks and terrorism.

“There’s never been a time of greater peril or opportunity,” said Nick Batten, vice president of global services, FM Global. “The pace of regulatory change that we are seeing in the financial markets across the world is faster and more capricious than ever before. Companies need to adapt accordingly to meet those changes.”

And with 94 percent of companies saying they plan to grow their operations outside the U.S. within two years, according to a recent survey by The Hartford, that risk is only going to increase.

There are three main insurance options available for a multinational: local policies, a single global policy or a controlled master program (CMP).


The local policies are issued by a licensed-admitted local broker or carrier to insure against risks in that particular country, whereas a single global policy or master policy is generally issued in the insured’s home country and is intended to cover all of its worldwide risks on a non-admitted basis.

A CMP combines both local policies and the single global policy to provide comprehensive coverage and to ensure there are no gaps.

Which option a company chooses depends on the size of its global footprint, exposure, risk appetite, approach to local retention and deductibles, and level of central decision making.

“Not one size fits all,” said Praveen Sharma, global leader, Marsh’s Insurance Regulatory & Tax Consulting Practice. “It all depends on the particular client, their business model, exposure and risk appetite.”

Key Considerations

Before entering into a global insurance program, Sharma said companies should first work with a knowledgeable broker and insurer to determine their risk, the regulatory and tax requirements in that country and why they need to buy an insurance policy.

Then they need to find a program that provides comprehensive coverage at a reasonable cost and complies with the necessary laws and regulations, he said.

“It is paramount that the insurable risks of the U.S.-based group are insured in an appropriate manner and that the global insurance program responds in the expected manner in the event of a loss suffered by the U.S.-based insured group,” said Sharma. “The insurance program therefore must be structured in a manner that is ‘fit for purpose’ and meets the insurance needs and expectations of the multinational group and is as compliant as possible from both a regulatory and a tax perspective.”

Another key consideration is the growth of third party risks within the supply chain, said Kathrin Howard, practice leader, Allianz Multinational, USA.

“Companies need to understand all the components of their supply chain and find a program that can help them to mitigate that risk,” she said. “It’s also important to have a back-up plan should the worst happen.”

Central to developing a successful program is also being consistent and ensuring retentions and terms and conditions are similar across all borders, said Lou Capparelli, executive vice president at Chubb’s Global Casualty Business in the North America Major Accounts Division.

“Those U.S.-based multinational companies that are successful in addressing these challenges typically have programs in place that provide uniformity in the limits and types of coverage they purchase to address worldwide exposures,” he said.

“For example, a deductible recovery program structure can help simplify the process and position companies to better retain desired portions of risk globally, while ensuring they are compliant with local regulations and tax requirements.”

Local vs. Global Policy

Some countries may require local operations to be covered by a local policy issued by a licensed local carrier, certain terms and conditions may only be available in the local marketplace, or the local subsidiary may also be required to calculate and settle local premium taxes itself.

Carol Barton, president, AIG Multinational

The main advantage of buying local policies is that they meet local industry practices and regulatory requirements, provide access to local reinsurance pools as well as fulfilling local contractual obligations, and enable local claim servicing and payment of claims, premiums and premium taxes.

“Certainly in the past a more centralized approach would have made sense, but now, given the current wave of nationalism and the development of local markets, a more local or regional approach may be more appropriate,” said Aon’s Global Client Network U.S. leader Kathleen Lynch.

“Also, there are certain countries and local markets that require local insurance, so those nuances have to be factored in with developing a program.”

With a single global policy, the company can assess its risks and insurance needs centrally and provide consistent terms and conditions, limits and umbrella attachment points for its worldwide operations, particularly for cyber and environmental.

However, AIG Multinational’s president Carol Barton warned against choosing a global policy at the expense of local policies.


“Clients should be well-versed on the potential limitations they may encounter should they choose to forgo local policies,” she said. “In particular, multinationals should be aware of the potential pitfalls a lack of local coverage could create in the areas of compliance, claims, income tax, proof of insurance and coverage.”

With a CMP, however, you get the best of both worlds, with the global policy providing difference in conditions or difference in limits to bridge any gaps in the local policies, particularly in property, international casualty and D&O.

It also provides coverage if a claim is either not covered under a local policy or the local policy limit is exhausted, and covers risks in countries where there are no local policies.

“That’s the way a large percentage of multinationals are operating now under a CMP,” said Claude Gallelo, managing director and leader, Willis Towers Watson’s Global Network Practice. “It gives them the advantage of having a local policy as well as that added element of protection by being better able to control their overseas operations with a master program.”

Tim Bunt, chief risk officer, CBRE, a commercial real estate firm present in 120 countries, said his company uses all three approaches.

“In some cases we use a global policy, in some it’s a CMP and in others we’ll have local policies in those countries,” he said. “The approach you choose depends on what you are trying to achieve as a company with your overseas operations.”

Risk Transfer and Mitigation

One way to further mitigate or transfer risk is to insert a financial interest clause, said Joanna Roberto, a partner at Goldberg Segalla’s New York office.

This allows the parent to shift certain risks to or away from its subsidiaries by only covering its own financial interest in that particular subsidiary, she said.

“A financial interest clause is an interesting concept because it completely avoids the risk of losses that are suffered by a subsidiary by expressly not insuring them under the master policy,” she said.


“Indeed, there are other variations of the clause which require evaluating the parent company’s ownership interest against the loss sustained by the subsidiary.”

Another loss prevention technique, said Smita Bhugava, senior vice president, Clements Worldwide, is to have an action plan to deal with any potential events, to reinforce best practices and to share knowledge with peers and experts in that country.

“The world and the exposures we face are becoming more complex and varied,” she said. “So you need to have a well-thought-out strategy that will address all of these issues and ensure that you don’t have any nasty surprises.” &

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

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.


Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.

R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.


We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?


Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.


Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.


More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]