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DO YOU REALLY NEED A LOCAL POLICY?GRM 005
Speakers:
• Roxsann Wilson, Vice President, Risk Management, Cardinal Health, Inc.
• Rick Jensen, Managing Director, Willis Towers Watson
Learning Objectives
At the end of this session, you will:
• Answer the seven questions that determine your need for a local policy
• Weigh the relative need for a local policy in various countries
• Identify the parties—inside and outside your company—who can help you decide the local policy question
Background
• CMPs: Coverage and Cost optimization
• Past practice• 60s/70s
• “FLEXA plus DIC”
• Increased regulatory and fiscal scrutiny
• Increased risks to insureds/insurers/brokers• Retrospective tax liabilities, fines and penalties
• Local authorities may declare sanctions against local operations
• Carriers could lose their license
• Strict penalties, including fines, suspensions and imprisonment of offending insurers
• Penalties could apply to insured, the insurer and/or broker
Landscape
• Over 90% of countries have restrictions on the use of non-admitted insurance
• Almost no country entirely open (think compulsory covers)
• Example: USA
• Many countries – very few exceptions
Business process and decision making• There is no “right” answer
• Talk to tax, finance and the business
• Gather feedback from your broker and carriers
• How compliant can you afford to be or not be?
Business process and decision making• Ask yourself, if you have a loss, where would you want it to
be paid?
• What are the implications from a tax perspective?• If the local entity is receiving the benefit of the global coverage, they
should be allocated premium.
• Some carriers will file the local taxes without requiring a local policy to be issued.
• Premium tax is payable even if premiums are not internally charged.
• Premium taxes can be substantial depending on the country — 1-24%
• Will the local entity be able to deduct premiums? Are they profitable?
Business process and decision making• Is “Good Local Standard” good enough?
• Challenges in getting indemnification payments from DIC/DIL to the country.
• Do you need the local policy to match the master terms and conditions?
• What are the implications for Cash flow?
=
Enable the business
• Meet your contractual requirements:
• Leases
• Customers
• Governmental agencies
• To whom do you need to provide evidence of coverage?
Decision Tree
• Do you have a local entity?
• Is the coverage compulsory?
• Are there any specific laws? Environmental, PL for Pharma, etc.
• Is non-admitted permitted?
• What are the size and scope of your operations?
• Are there contractual obligations?
Current Market Practice
Common use of underlyers /
locals
Property
Liability
D&O
Fewer locals, but growing in
frequency
E&O
Environmental
Cyber
Excess liability
BTA
Marine
Energy
Construction
Directors & Officers
• Are you able to indemnify?
• Do you have local directors — or equivalents?
• What is the size & scope of local operations?
• What is the local regulatory environment?
• Brazil, China, India, Russia
Casualty
• Why would you NOT have a local policy?
• Lower limits than e.g. property
• Cost tends to be low
• Defense
• Foreign legal system
• Lack of local in-house counsel?
• Language of policy
• Considerations:
• All losses depend on local law
• Litigiousness of territory
• Local limits desired/needed
Property
• Questions to ask:
• Who owns the inventory?
• Where do you want the loss paid?
• Where do you report BI vs. where the loss occurs?
• Considerations:
• “Good Local Standard” coverage is often very limited
• Focus on local contract certainty
• Difficulty getting indemnification from DIC/DIL coverage
Deductibles and cost optimization
• Is your policy issued out of Lloyds of London?
• Won’t need to issue local policies in countries where they are licensed.
• Can you use an FOS to reduce the administrative costs?
• Do you allow differentiation of deductible levels?
• FX impact – some markets are seeing increases of 20-60%
• Tariff-rated countries
• Increased demand for “full limit” local programs
• Allocations – different carriers have different approaches
Challenges
Countries/Regions Factors
• Cross-border regulatory cooperation
• Fiscal vs. insurance
• IAIS positions; industry efforts
Challenges once you decide to move forward• Ability to pay & sign for the policy locally
• Administration of the program
• Carrier limitations
• Allocations
• Cash before coverage – China, India, Japan, Puerto Rico, S. Korea, parts of Africa
So?Do you really need a local policy?
• Default answer? Yes, but. . .
• Real answers vary by situation — ask the questions• Is the coverage compulsory?
• Does the country “require” locally admitted cover for the subject policy?
• Do you need to evidence local insurance?
• Your operations — are they material in size and scope?
• Who are your customers?
• Do you want or need to allocate the premium to the local operation?
• Do you need for claims to be paid directly into the country?