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A call for improved global coverage.

A Call for Improved Global Coverage

A few years ago, the insurance industry foolishly set corporate insurance buyers on the path to complete freedom from insurance markets when it withdrew coverage for major liability exposures. The buyers' response, as is well known, was to jointly set up their own highlayer liability captive insurance companies, such as ACE and XL.

ACE has no reinsurance and XL has only a "clash" cover; both companies now have billion-dollar asset bases. Most importantly, ACE and XL have kept their policyholders despite the softening market.

If, under the pressure of circumstances, buyers can innovate risk financing answers like ACE and XL, there is not much sense in insurers assuming that the buyers will only go so far. It is easily within the capabilities of the world's major corporate buyers to devise risk financing solutions for all their needs, including reinsurance.

Survey Results

Even for global insurance programs, let alone independent risk financing, many major international corporations still tread the worn paths of yesteryear. For example, Alexander Stenhouse recently queried the United Kingdom's top 500 companies on the philosophy and effectiveness of their insurance programs. The typical respondent to the survey have worldwide sales in excess of 100 million [pounds]. The survey has some interesting results, which follow.

Although it appears that a large percentage of companies have some global arrangements, these are by no means full programs because they do not apply to all subsidiaries or to all coverages. Therefore, there is considerable scope for improved global arrangements for the 29 percent which have no global arrangements and the extension of global cover to major insurance products, such as material damage, and some lesser coverages.

The survey showed that a growing number of multinationals have opted for global arrangements over the last three years. It also showed that an increasing number of companies with lower exposures (based on turnover) are purchasing global coverages.

General Satisfaction

Overall, there seems to be a general satisfaction with global arrangements from companies which have experience with this type of coverage. There is no evidence that multinationals have disbanded them.

The main reasons given by companies for favoring global coverage are consistency of coverage worldwide, cost savings, greater management control and the extent of overseas exposure. Ease of administration is shown to have the lowest priority in the decision.

The main reasons given for not arranging global cover are insufficient overseas exposure, the need to give autonomy to local management and inertia, which was cited by one in five companies in the group. Multinationals which do not use global arrangements rely heavily on general guidance from head office or leave insurance matters totally in the hands of overseas subsidiaries.

There also appears to be evidence of greater frequency in reviewing global covers, compared to the non-global arrangements.

No Dominant Insurer

Furthermore, the survey results reflect a move away from a single global insurer to the use of several. There is also a trend toward using captive insurance companies, which already have a significant participation in global programs.

Four brokers were considered by the majority of respondents to have the capability of planning and organizing an international property and casualty program. Lastly, there was no evidence of any one dominant global insurer.

Alexander Stenhouse concluded that while more companies are making decisions in favor of global coverage, the concept has not been applied rigorously, as many multinationals only cover a few of their risks on a worldwide basis. They often do not include all overseas subsidiaries and leave a number of exposures outside the program.

Though the rapid expansion of many U.K. multinationals into the United States and continental Europe requires them to consider global programs to protect their shareholders and commercial interests in the most effective way, it is not clear that this is happening.

Chris F. Best is the editor of Foresight, a London-based risk management and insurance journal published by Risk and Insurance Group Limited.
COPYRIGHT 1989 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1989 Gale, Cengage Learning. All rights reserved.

Article Details
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Title Annotation:insurance programs
Author:Best, Chris F.
Publication:Risk Management
Article Type:column
Date:Mar 1, 1989
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Next Article:New captive election may have hidden problems.

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