The Friday after-Hours Nightmare
It’s late on a Friday. XL Group learns one of the insurer’s large 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.
Bruce Wineman, the senior managing director for the U.S. and Canada at Aon’s Global Client Network, calls it the “Friday evening nightmare scenario.”
“It happens all the time in the U.S.,” Wineman says, “but it is happening with increasing frequency now outside the U.S.”
For XL, a global insurer with enough international offices, 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 XL 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, XL Group’s director of global programs and network services.
Bob Burns, Marsh’s Multinational Client Service leader for the United States and Canada, says it’s critical for an insurer of international customers to be available at all times.
“Clients have some unusual and often time-sensitive servicing needs,” Burns says. “Success in these instances relies upon a global insurer’s ability and willingness to work with us, throughout the weekend, to make the necessary arrangements in terms of local policy issuance and evidence of insurance.”
XL has more than 30 years of experience in global programs, and in May 2013 the company launched a Global Programs Center of Excellence to provide even more coverage capabilities and better service to its multinational clients.
“Governments around the world increasingly are requiring higher and higher levels of coverage and are enforcing existing regulations more intensely than ever before,” says Strong, who heads the center. “The center was started to address just that—the rapidly changing nature of the global landscape especially in regard to regulatory compliance and the requirement of best-in-class service.”
“This has allowed us to see past just the product view and understand client needs in terms of coverage and discrete elements of coverage throughout the annual cycle,” says Alfred Bergbauer, who heads XL’s multinational casualty operations in North America. “We can bring in a professional team of in-house consultants with information about each of the jurisdictions we operate in. That has allowed us to help the underwriters do what they do with better information than they have ever had before.”
“The market really has changed,” Wineman says. “International coverage has gone from a specialty area of insurance applicable to only a small number of clients off to the side of the insurance industry to a really core business for all our clients. With an increasing global environment and an increasing level of complexity, the result is a convergence across product lines. It used to be international coverage involved primarily an international liability policy, but these days there is not a single line of business that could not be subject to international claims.”
Of course, once coverage is placed, brokers still face the challenge of servicing their customers’ international locations. For large brokerages such as Marsh or Aon, that is not as difficult because they often have foreign offices that can handle the customer service. But for smaller and midsize brokerages, that sort of “feet on the ground” service is not possible unless they establish a relationship with an intermediary that has global experience or join a network such as the Worldwide Broker Network.
“You need to have a relationship—eyes and ears on the ground that you can do retail consulting with,” says Bruce Basso, CEO of the World Broker Network, which has a presence in more than 100 countries.
One major change that both carriers and brokers are facing is the increased attention by foreign governments to whether insurance coverage is provided by admitted (locally licensed) or non-admitted insurers. Regulators in most countries require a client securing coverage to procure it from a locally licensed insurer, either a native company or a large company such as XL that holds a license to do business in that country. Currently XL can issue policies in 150 countries on a locally licensed and admitted basis.
“The old adage used to be that people don’t sue each other overseas,” Wineman says, “but I can tell you they definitely do. We are seeing a lot more instances of how the structure of an umbrella policy, for example, can impact how claims get managed and how a program performs or not.”
Wineman cites the example of an insured in France that experienced a “significant loss.”
“The typical program structure was to put in a primary layer of liability coverage on an admitted basis,” Wineman says, “but when this claim was submitted to the umbrella carrier, they said we can’t pay a claim on your behalf” because the company’s umbrella coverage was written on a non-admitted basis.
As a result, Wineman says, the carrier told the client, “The policy reverts to an indemnification basis—essentially, you pay the claim and show us, and we’ll pay you back. For the client and the broker, this was not how we anticipated the program would function. So the issue is: How do we help that client deal with that immediate situation? How do we learn from this kind of arrangement? And what changes do we want to make on how to structure the program?”
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 tax in some countries can be north of 25%,” Wineman says. “By encouraging local placements, these countries can more easily identify and collect the appropriate insurance taxes.”
Another challenge facing multinational customers involves the regulatory requirements of the country in which they operate. “Today, there are about 17,000 environmental regulations across the world, and ensuring compliance for each of the firm’s operations across the territories in which it operates is no small order,” Strong says. “But it is necessary to negate any potential financial and reputational damage an environmental event may present.”
“There is more auditing of insureds, underwriters and brokers, looking for violations of insurance regulations,” Bergbauer says. “In the United States, for example, one of the biggest changes is enforcement of regulations. The Internal Revenue Service is paying attention to claims payments of overseas entities as taxable events, and the financial implications for non-compliance are greater.”
Increasingly, multinational companies are opting to build a global program to address property, general liability and marine insurance needs. More companies are creating their own global D&O programs as well as cyber security coverage.
“The market is also seeing a requirement for much higher local limits,” Strong says. “Where, once, $1 million of locally evidenced cover may have satisfied municipalities for infrastructure projects, more and more municipalities are now requiring liability limits of at least $10 million or more, and unlimited amounts in some instances.”
One of the things a large global broker looks for in the global insurance marketplace is a carrier’s ability to put together what Wineman calls “a truly viable global program,” one that goes beyond the obvious issues of coverage and price. When such issues as global intelligence, a service network that can respond quickly, the ability to issue coverage certificates on an admitted basis and other administrative services are considered, Wineman estimates that fewer than 10 “truly effective global markets can write across multiple lines of insurance.”
XL is the third largest of those all-encompassing providers of global coverage.
“One of the things that is increasingly important is the administrative component and service around claims,” Wineman says. “You need an efficient approach to claims, the right claims personnel within their group or clear procedures on how they are going to engage or not, and also the data—the accuracy and timeliness of claims data. I’m not sure many carriers have historically built in good quality claims services and data capture, and a lot of companies have been trying to play catch-up in that area in the last few years.”
According to Burns, global carriers servicing multinational clients need to demonstrate a real sense of organizational and individual commitment to answering the client’s need. “Multinational issues can be quite complex, may likely involve regulatory considerations, and will often require the insurer’s operations in more than one country to work together, quickly, to resolve an issue,” Burns says.
“Global insurers need to set expectations about what information is needed to satisfy the client’s request, the timeframe required and anticipate the question the client or broker didn’t ask. Proactively addressing issues such as admitted insurance regulations, premium taxes, cash before cover, special application requirements, anti-money laundering forms and premium invoicing approaches can go a long way.”
“When you think about multiple product lines and multiple geographies, the need for overall responsibility and accountability is critical,” Bergbauer says. “One of the ways we outperform our competitors is we track key performance indicators and how well we are doing at keeping our promises to our clients.”
XL expects its multinational client base to continue to grow as more companies move into the global economy and recognize the advantages of doing business with an insurer experienced in the complexities of the international marketplace.
“These days,” Strong says, “if you make a product that could find its way outside your home country, it makes sense to look at a global program with worldwide coverage.”