Global Insurance Requirements

John BarnwellJohn Barnwell

Bruce EberlyBruce Eberly

Bruce WinemanBruce Wineman

May 7, 2010May 7, 2010

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Discussion TopicsDiscussion Topics

Overview from a Cargo Perspective– John Barnwell, Allianz Global Corporate & Specialty

Theoretical and Practical Considerations– Bruce Eberly and Bruce Wineman, Aon Global

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“Globalization is not something we can hold off

or turn off…it is the economic equivalent of a

force of nature – like wind or water.”Bill Clinton

Ah, Globalization Ah, Globalization

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Topics to CoverTopics to Cover

Growth in Sector Complex Environment Implications of Non-Compliance Possible Solutions

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Growth in SectorGrowth in Sector

Source: IUMI 2009 Cargo Fact Sheet

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Growth in SectorGrowth in Sector

Global exposures of clients are changingGlobal exposures of clients are changing

Worldwide shift of investments across the globe (growth / emerging markets)

Global M&A activities across trade sectorsFocus on efficient and lean production processes and

service capabilities

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Growth in Sector/Complex EnvironmentGrowth in Sector/Complex Environment

“Wide Angle View Seen As Key For Global Programs” (3/29/2010)

“Global Strategy Stabilized IBM During Downturn.”

(4/20/2010)

“Ignoring Local Insurance Regulations Could Scupper Global Expansion”

(3/9/2010)

“Non Admitted: The Hidden Dangers”

“Canada, Not the 51st State: Insuring Canadian Exposures”

“Effective Global Risk Programs: The Impossible Dream?”

(Session topics)

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Complex EnvironmentComplex Environment

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Complex EnvironmentComplex Environment

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Complex EnvironmentComplex Environment

Increased regulationIncreased regulation

Multinational legal and fiscal Multinational legal and fiscal environmentsenvironments

Trade restrictionsTrade restrictions

- UN SanctionsUN Sanctions

- OFACOFAC

Trade is global – but regulations are local

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Complex EnvironmentComplex Environment

Admitted Coverage Required?

Country Imports/Exports Storage

Brazil

Russia

India

China

Argentina

Mexico

Canada

Admitted*

Non-admitted

Admitted*

Non-admitted*

Admitted

Admitted

Admitted

Inland Transit

Admitted

Admitted

Admitted

Non-admitted*

Admitted

Non-admitted*

Admitted

Admitted

Admitted

Admitted

AdmittedAdmitted *

Admitted*

Admitted*

* Dependent on certain conditions & terms of sale* Dependent on certain conditions & terms of sale

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Implications of Non-ComplianceImplications of Non-Compliance

Fines and penalties

Unanticipated tax charges

Jail

Reputational risk

Trade disruption

Suspension of insurer‘s license

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Possible SolutionsPossible Solutions

Centralized Approach Establish centrally controlled / coordinated

Risk Management philosophy Establish centrally controlled / coordinated

Master Program with local admitted cover Pool local policies via reinsurance Integrate Captive if required

Decentralized Approach

Obtain standalone insurance coverage locally

Buy separate DIC/DIL cover at central level, where allowed

Employ local decision-making

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SummarySummary

International trade will continue to grow

Trade is global – regulations are local

Complex global regulations require a team approach

Each client is unique and requires customized solutions

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Discussion TopicsDiscussion Topics

Overview from a Cargo Perspective– John Barnwell, Allianz Global Corporate & Specialty

Theoretical and Practical Considerations– Bruce Eberly and Bruce Wineman, Aon Global

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Why is this Important Now?Why is this Important Now?

Corporate governance Increased awareness by regulatory

authorities Tax issuesProgram administrationReputational riskContract/Vendor requirements

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Compliance ConcernsCompliance Concerns

Regulatory: Laws are not objective – particularly for

global firms Solutions may be expensive Penalties

Tax: Responsibility Process for payment under global program

structures Materiality

Logistical: Cost Resources Administration, including allocations

How can companies identify and manage their level of compliance risk?

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Compliance SpectrumCompliance Spectrum

FULL ADHERENCE

Wish to provide global coverage, addressing all countries with operations

METHODOLOGY

Address countries based upon selected criteria – # of employees, size/nature

of operation (i.e., non-sales offices), number of

Ds&Os, etc.

ARBITRARY / “SQUEAKY WHEEL”

Address countries which complain loudest

MINIMALIST

Investigate concept/cost,

Do nothing

COST

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Designing your Global ProgramDesigning your Global Program

FULL ADHERENCE

Wish to provide global coverage, addressing all countries with operations

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Compliance FrameworkCompliance Framework

Country

Non-admitted permitted

Compulsory coverage

Local placement

No

Yes

Calculate IPT

Pay to carrier or fiscal rep.

Evaluate:• Business importance• Corporate objectives/structure• Contractual obligations• Indemnification provisions/restrictions• Availability of cover/limits in local market• Regulatory approval process• Penalties/consequences• Allocation philosophy• Tax position• Retention levels• Local service needs• Costs involved and/or other factors

Score countriesRed

YellowOptions Green

Second priority Leave aloneObtain regulatory

approval

Local policy

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Multiple StakeholdersMultiple Stakeholders

Insurer Broker Insured:

– Risk Management

– Senior Management

– Tax

– Legal

– Finance

– Business Development

– Purchasing

– Field

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Program OptimizationProgram Optimization

Program factors in requirements governing compulsory, admitted

& non-admitted coverage, contractual and tax

requirements.

A comprehensive communications plan to ensure all parties have

necessary information and contacts support both business and risk

management objectives.

Program design based on review of operations, cross-border business

issues and processes. Critical issues such as contractual obligations, interdependencies, contingent exposures, operational needs

addressed.

Program options include efficiency in design, costs, and

administration.

Selection of markets based on leverage, coverage, cost and

capabilities regardless of underwriting location.

AddressAddressExposuresExposures

ComplianceCompliance

ProgramProgramStructureStructureMarket Market

SelectionSelection

Efficiency &Efficiency &ExecutionExecution Global Risk

ManagementProgram

Program structures tailored to minimize coverage overlap while ensuring program response and compliance where available and

commercially feasible.

Address Corp.Objectives

The optimal program incorporates the firms’ risk finance and management objectives into its structure and implementation.

CommunicationsCommunications

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Available ToolsAvailable Tools

AXCOLloyd’s CrystalAdvisenInsurance Services

Network: – www.isn-inc.com

AIMU– www.aimu.org

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AXCO – Summary Market ReportsAXCO – Summary Market Reports

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Lloyd’s - CrystalLloyd’s - Crystal

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Compliance Case Study - BrazilCompliance Case Study - Brazil

Situation - Brazil: Global Tech firm with assembly operations in Brazil

- Parts imported, assembled & the finished product exported.

Brazilian cargo premium exceeds entire global cargo program premium- Firm needs to reduce costs

Possible Solutions: 1. Cover Brazil under Global Cargo Program

2. Set up admitted underlier to Global Cargo Program

3. Pretend to Self-Insure but really cover under Global Program…after all, Import Insurance is no longer compulsory

4. Export Insurance isn’t compulsory so self-insure

Result: “We’re screwed…but at least we know why”

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SummarySummary

Theoretical, but becoming more realistic

Each company will have different risk tolerance

Pragmatic process for identifying and managing Compliance risk

Solutions will continue to develop

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