International Insurance Programs between Possibility and Necessity

The 6th MCC Congress on Industrial Insurance took place on 11-12 February in Düsseldorf. In addition to trend topics such as cyber and D&O insurance, International Insurance Programs (IIPs) were one of the main subjects.

The heatedly debated question was: What can IIPs achieve? Which possibilities do they offer and which – above all compliance – obstacles stand in the way of using them?

International Challenges

Dr. Dirk Schilling, Head of Casualty Guidance and Captive Services, HDI Global SE, addressed some of the upcoming international challenges. He pointed out that Brexit has led to uncertainties around existing and new policies. If the freedom to provide services between the EU and the United Kingdom ceases to apply, certain insurance policies may have to be re-issued under local law.

Whether transitional periods will apply, whether certain lines of business will have to be run-off or whether EU-based insurance companies will have to take out local policies with UK insurers for international programs in the future is currently still unclear.

Furthermore, special features of the Chinese and US insurance markets were highlighted. In the US, for example, a filing of wordings is required in each state covered by a policy. And in China, insurers have to apply for a separate license for each province.

Increasing Importance and Relevance of International Programs

Dr. Schilling explained that IIPs represent a compromise between global “one-size-fits-all” policies and highly decentralized “local principality” solutions.  Truly global policies are not realistic in the foreseeable future, primarily due to regulatory risks. Independent, local solutions are available for almost all countries, but have the disadvantage of being expensive for the policyholder. Also, local solutions make it challenging to coordinate coverage.

The only pragmatic solution that remains is a well-balanced international insurance program. These offer coordinated insurance cover across different countries. Country specifics can be taken into account while enabling the customer to control costs and coordinate coverage.

 Limits of International Insurance Programs

Even IIPs cannot eliminate all challenges in international business. For example, a carrier may be able to offer cover in certain countries without itself having regulatory approval in the country in question (“non admitted”). However, many countries also prohibit the underwriting of risks “from the outside” (“not allowed”). HDI describes these countries as NANA countries – non admitted, not allowed. These include large emerging markets such as Mexico, Brazil and India.

An insurance customer with subsidiaries in a NANA country thus has a challenge: it cannot usually insure these subsidiaries under the master policy of the IIP.

This is potentially remedied by Business Continuity Interest Clauses (BCIs). The loss suffered by a foreign subsidiary is transferred to the parent company’s balance sheet. This results in a loss of assets for the parent company, which is e.g. domiciled in Germany, which is compensated by a policy issued in Germany. Whether BCI clauses are compliant with local tax and insurance regulations must, however, again be clarified on a country-specific basis.

Conclusion

Ultimately, it can be concluded that there is no “silver bullet” solution for cross-border insurance. A medium-sized company with few subsidiaries in the EU does not need an IIP, while an integrated group with global production and sales locations on several continents can save costs and optimize risks with an IIP.