Global Broker Clinic: The world service

In the current economic climate, many British businesses are looking enviously at prosperity overseas and trying to find ways to access new markets. But, for many clients, finding insurance across different markets is a challenge that they feel particularly ill-equipped to deal with.

Last Thursday Insurance Times, in association with Ace, convened a breakfast clinic of industry leaders to discuss how brokers and insurers can best help clients navigate the challenge of setting up and maintaining worldwide insurance programmes.

“If we have one objective today, it is to try to debunk the complexity and identify the issues to servicing surrounding these programmes,” Ace’s regional manager of corporate risks southern, Jon Houghton, said.

It is well worth the effort. Eighteen months ago, there were more than 800 UK companies with a turnover of less than £100m and with an overseas subsidiary, according to Ace, that has seen a rise in clients setting up financial centres around the world and a growth in offshore manufacturing. Property and casualty are the main classes for global programmes, but others, including accident and health, directors and officers’ and marine, are increasingly important, said Houghton.

And while banks’ international operations may be making the headlines, they are now far from the only game in town.

Rebalancing act

“The government hates the banks,” Ace director of multinational services Clive Hassett said. “So when they talk about rebalancing the economy, what they’re really talking about is trying to promote growth in sectors such as manufacturing and other non-financial service industries.”

The UK is the world’s seventh-biggest manufacturing economy, said Hassett, with about 27,000 companies routinely involved in exporting goods and services in London and the South-east – all of which are potential customers for global insurance programmes. And it is a sector beating the gloom, as Hassett pointed out: manufacturing is growing at its fastest pace since the mid-1990s, the sector made up about 16% of the UK’s GDP in 2010, and employed about 10% of the workforce.

And there is further good news for British manufacturers: the Far East’s domination of global manufacturing may be facing an inflationary chink in its armour. “China particularly has an inflation problem,” Hassett said. “It’s going to have to put up interest rates and suck in imports.”

The market for global programmes may begin to include smaller outfits as well as the traditional big players. The Export Credits Guarantee Department’s recent announcement that it was broadening the level of trade financing that it supports will allow a greater number of smaller firms to access its benefits, said Hassett. UK firms with exports and contracts at £100,000, and even possibly below, are now able to enjoy its support, he said, providing a boost for smaller exporters and those looking to insure them.

And with the Treasury bank deal Project Merlin supporting the provision of up to £190bn of loans from the four biggest lenders to smaller companies in 2011 – up from £179bn in 2010 – more small businesses could look to expand into international markets. The insurance industry, said Hassett, could help them to realise their ambitions.

Making things clear

The EU’s recently adopted services directive, Hassett added, also makes it easier for an insurance company regulated in one EU country to offer insurance in another – although Hassett cautioned that insurers and brokers needed to be aware of the different laws and regulations that applied across jurisdictions.

This complexity makes clarity all the more important and Hassett advised brokers to demand detail and transparency from insurers. “Global insurance should not, and must not, be a tale of smoke and mirrors,” Hassett said.

To ensure that clarity, he added, brokers must invest time and money in seeking advice and building expertise.

Providing such clarity for clients can be a daunting task. Ace underwrote risks for the British Council as new business in 2010. The large number of territories the British Council works in means that it has tough insurance requirements. Cultural differences between countries, legal and compliance problems, changing political landscapes, employee welfare and security combine to create a particularly complex set of problems for the Council, said Ace property and casualty manager for the southern region Graeme McGeachie.

The biggest challenges by far, McGeachie added, were legal and compliance issues.

Ace had been able to help the Council with these through good programme administration, he said, providing it with 68 local policies

within six weeks. In each case, the Council could easily see what was happening in each territory, monitor Ace’s performance and print off policy documents. Ace also provided foreign entity coverage.

The benefits of an experienced team of underwriters, a network management team, and a dedicated account team that dealt with policy, compliance and tax issues were clear, said McGeachie. “We help them with the tax allocation, we help the tax be remitted to the right territories and we get it done in a timely fashion.” Good service, not price, he argued, were the key to retaining a client’s multinational business.

What clients want

For the client’s perspective, the panel turned to Prudential group insurance risk manager and Airmic board member Helen Hayden.

Global programmes were an enormous headache for many businesses, she said: “I’d love to stand here and say putting together a compliance programme is easy, but it isn’t. I’ve been there, got the scars … I should be wearing the T-shirt.”

The first challenge for businesses is knowing where to find the appropriate laws and regulations that applied in different countries in order to ensure compliance, she said. Even then, it was not always immediately clear exactly what the regulations applied to.

The same problem rose when dealing with tax issues, said Hayden: “It is very nice to hear Ace say they’ll take care of all the tax issues for us. I’d love to say ‘thank you very much’, but in some jurisdictions it’s not their responsibility, it’s the insured’s.”

Hayden warned insurers against making compliance an area of competitive advantage. Compliance, she insisted, was an industry-wide problem that needed a cohesive response, not profiteering.

What a client is looking for is certainty from its insurer that its contract is legal and secure, she said, adding that a clear policy layout was also important. Ideally, clients would also like consistency of cover, she said, but this could not always happen in practice.

And good communication is crucial, too: “You have to keep that dialogue going between broker, insurer and client, in every territory,” said Hayden. If business users were not kept informed, she warned, they could cause her problems, which would impact on her broker and then on the broker’s insurers, leading to an “unvirtuous circle”. Communication, said Hayden, was the key to solving this.

Whether embarking on new international adventures or looking to insure more established risks, clients are looking for similar things from their insurers – as Hayden put it, the “four Cs” of compliance: certainty, clarity, consistency and communication. IT