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Insurance executives recognize global needs.

"Insurance buyers are driving the market for global programs, and insurers know they must provide them or perish."

Service, service and more service appears to be the insurance providers' rallying cry to meet the challenges and opportunities presented by the increasing globalization of industry and commerce. From this attitude, insurance buyers can take solace, knowing that the head decision makers of the world's leading insurers are recognizing the buyer's (not just the broker's) global risk management program needs and are committing greater resources to deliver the goods. This was one of the overriding themes that surfaced from a panel of senior insurance executives speaking at the "Global Marketplace" forum recently held by The College of Insurance and Johnson & Higgins in New York.

"Much of the impetus behind the growth of the global insurance marketplace is coming from the buyers. More and more, companies are communicating clear global strategies, and smaller firms are looking beyond their own countries for growth and profits. Many multinationals are finding the best way to manage worldwide risk is through a global insurance program," noted the forum's moderator, David M. Olsen, chairman, president and chief executive officer of Johnson & Higgins in New York. "Global insurance programs are not new. But they certainly have reached a sophistication that challenges all of us underwriters and insurance buyers. Today, coordinating and servicing the global insurance programs is perhaps more important than the insurance itself," he added.

Where insurers may have once treated the brokers as their primary clients, they are now treating the buyer - the individual or company actually paying the premium - as such. This is reflected in the attitudes of the leaders of the global insurance community. For H. Edward Hanway, president of CIGNA Worldwide in Philadelphia, one of the keys for insurer success is a strict commitment to customer service: "We are no longer simply insurance providers but also service providers. No longer can an insurer be all things to all people. Clearly the days of the global generalist are over."

Several of the panel members remarked on the rising sophistication of the buyer, which will require greater ability and even change on the part of insurers to provide advanced products on an international basis. "As risk management techniques continue to grow more sophisticated, and alternative financing options proliferate, the traditional approach to risk transfer must also evolve," stated Thomas J. Brown, managing director of Royal insurance (Global) Ltd. in London. Buyers have placed "greater demand on price reduction, expense control and service, and have expanded their requirements to include such emerging issues as environmental exposure and directors' and officers' liability," added Brian Duperreault, president of American International Underwriters in New York.

Robert Hill, a senior vice president with Kemper National insurance Companies in Long Grove, Illinois, said that his company currently estimates that there are about 7,500 multinational corporations (MNCs) in the United States, and between 3,000 and 4,000 non-U.S. MNCs. However, only 200 of them have global insurance programs so far. And as more companies go global, ever more "risk managers will face global interdependencies, single sourcing of supply, and various cultures, customs and currencies," Mr. Hill stated. This means that insurers must position themselves to meet the rising demand for these global products and services. Indeed, Allianz Insurance Co. found little choice but to follow its "industrial customers who expanded abroad. Global programs require a strong international presence because global business is local business when it comes to service," remarked Wolfgang Schlink, the company's chairman, president and chief executive officer in Los Angeles.

How do these top executives view their multinational customers? "Today's buyers are risk managers whose companies have worldwide property at 100 to 200 locations. They are very sophisticated and demanding. Thus, our products and services must be state of the art," commented Shivan Subramaniam, president of Allendale Mutual Insurance Co. in Johnson, Rhode island. "It is important to know individual customers, not groups of customers," noted Thomas H. Hite, president of Zurich International in Schaumburg, Illinois. "We must establish local relationships that allow us to understand and address individual customers' needs and deliver what the customer believes is value and quality," Mr. Hite added. in response to the buyer's concerns and needs, insurers are expanding training, opening more branches overseas and investing in technology and information systems.

But Buyer Beware

When asked about a potential market hardening, Robert H. Dorgan, executive vice president of Continental Insurance Co. in New York, did not think that the insurance community will witness an overall dramatic turn in the market, due to its segmentation; "No longer is there a traditional overall industry cycle. How each company will be affected will depend on what business each is in." The worldwide property market has hardened and will continue to do so, Mr. Duperreault added, noting that prices will tighten as treaty renewals come due.

Pricing global insurance programs produces several challenges according to Mr. Hanway. First is that the world does not define risk the same; second, in terms of the statistics available to assess the cost of risk from market to market, they are very, very different. "So to assume that we can ever have a series of quantitative benchmarks like we have in the United States, for example, to globally assess the cost of risk, is folly at this point. Therefore, pricing will need to continue to be done, at best, on a regional basis," he added.

The confusion over who should be the provider (the insurer or the broker) was addressed with mixed conclusions. "Claims and loss control services provided overseas are several notches below what is provided here generally, which is due in part to this confusion. The relationship needs to be sorted out, which will help avoid duplication," Mr. Dorgan posits. Mr. Brown suggested avoiding unwanted duplication by developing insurerbroker joint ventures. However, the point was raised by Mr. Hill that perhaps the risk manager wants all three evaluations of the risk to be available and, thus, may not want to do away with the duplication, despite the added cost involved.
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Author:Kurland, Orin M.
Publication:Risk Management
Date:May 1, 1993
Words:1013
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