A 'Captivating' Argument for a Global Insurance Proposition

Daniel Lim

Introduction

This article will explore the concept of the ‘Global Insurance Structure’, how to facilitate such an arrangement and the benefits of doing so. The global insurance policy (or policies) can provide a consistent integrated approach to risk mitigation in multiple jurisdictions and territories. Finally, the article will address the benefits of creating a 'Global Captive Structure' as an alternative approach.

 

 

 

 

Why Create a Global Insurance Policy (or Policies)?

There are several benefits of creating a Global Insurance Structure, as opposed to stand alone policies in each territory. The underlying benefit emanates around the ability to centralise the function, thereby creating more control and potential cost savings. This, in turn, gives a consistency of covers with a wider wording that can be chosen by the purchaser. It also means that the company can set its own investment strategy. In the event that a claim does materialise the global structure should provide a centralised claims function which is consistent across all jurisdictions. The reader should note the words ‘control’ and ‘consistency’ which appears throughout this article.

The Mechanics

As mentioned previously, a centrally controlled programme from a 'Master' location can provide a consistent portfolio of insurance for all subsidiary companies. 

Practically a Master policy in the home territory provides coverage for the entire group. Where local ‘Admitted’ coverage is required*, a fronting policy can be arranged with the Master policy containing a 'Different in Conditions / Difference in Limits' clause. This means that cover in that local territory can potentially be enhanced by the Master policy and that taxes & levies are compliant with the local law. In jurisdictions such as the United Kingdom, where the insurance market is highly developed, this can result in wider coverage that may not otherwise exist in that local territory. However, with Brexit restrictions on Freedom of Services and FCA passporting, the limitations must be considered when placing business from & into the United Kingdom.

In addition to this, the logistical challenges of collecting information, the payment of invoices and the handling of claims can be ameliorated by a centralised approached. Stemming from the central location, information can thus be filtered down to local experts in order to provide a seamless and tailored approach.

For certain classes of insurance such as Professional Lines, a Worldwide Jurisdiction / Territorial Limits insurance can be placed from a central point by way of one policy. In this instance caution must be taken as there may be more specific covers or local legislation requirements which can deem it illegal to place insurance outside of the local jurisdiction. There may even be tax implications on claims payments.

*Denotes locally licensed insurance that complies with local regulation

Captive Insurance and Global Considerations

A captive insurance entity is a company which has been set up to specifically provide risk mitigation services. This ‘insurer’ is owned by the company and can therefore result in similar benefits to the global insurance placement i.e. more control, cost savings and consistency. Specifically, there is the potential, but not the guarantee, of tax savings and the ability to share in the profits of effective risk management. In fact, more than 90% of Fortune 500 companies have adopted a captive structure. Again, similar to the global insurance structure, a captive may only facilitate locally compliant cover by utilising a global network of insurance companies.

Conclusion 

This article has explored the various benefits of structuring a global insurance policy (or policies). Due to the very nature of the requirement to cover multi jurisdictions this prohibits the majority of insurers from setting up such an arrangement. The captive insurance structure can provide similar benefits but the running costs of setting up this entity restricts this solution to larger capitalised companies. The author has first-hand experience of structuring global insurance policies and can testify of the benefits. However, in order for the theoretical expectations to match the practical challenge, the issue of centralisation and coordination amongst the various territories may need re-examining.

ABOUT THE AUTHOR

Daniel Lim (IMC, FCII Chartered) is a qualified risk and insurance practitioner with over 15 years experience in the London and International market. He has serviced a number of high profile clients including several notable PLCs but is also passionate about adding value to smaller businesses. He has a keen interest in finance and all topics related to risk management.

Daniel can be contacted on lim112@hotmail.com or via the LinkedIn URL.

DISCLAIMER 

The contents of this article do not constitute advice in any capacity whatsoever and are provided for general information purposes only. 

There is no responsibility from the author for any information contained within this article.

The author excludes any liability in respect of the contents or for action taken based on this information.

This article does not necessarily reflect the views of an employer (past present or future), or any other institution affiliated with the author.

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