Global Programmes

Günter Dröse, Chairman of the European Captive Insurance and Reinsurance Owners’ Association (ECIROA), answered some questions from FERMA about ECIROA’s initiative on the insurance supervision of global programmes.

Our intention is to present the community of local supervisors, organised in IAIS, with facts that show that neither insurers, brokers nor insured corporations or supervisors can behave in a compliant manner with the accounting, tax and insurance regulation requirements in all jurisdictions. In this insurance market, all participants need to acknowledge that a change and adjustment in the regulatory area (or better, battle field?) is necessary.

Our aim is for IAIS to support and introduce a core principle in its Insurance Core Principles which demands a partial opening of barriers and borders, just and only, for the insurance coverage of excess layers, difference in conditions (DIC) and difference in limits (DIL) policies that are part of an international insurance programme provided by one or more insurers for a cross-border active corporation, with the condition that a locally issued policy is implemented in the “non admitted” country.

This is a general problem for all international insurance programmes above a certain size (in accordance with the countries involved). Captives usually write and carry risks of major industrial, trade or financial companies which – based on their volume and capital strength – are able to self-insure part of their entire exposure, following a more sophisticated risk management strategy. There is no difference with those programmes which are not reinsured with a captive.

There are accounting, tax and regulatory issues caused by requirements rolled out by the UN, OECD and accounting principles and tax laws. They cannot be applied in a fully compliant manner due to protectionist or self-interested local rules in some countries. But we are not trying to recommend remedies for the situation for each and every case in detail – this is not possible. The target is to achieve a principles-based understanding of such a core principle that local supervisors allow the regulations to come into line with international, (bilateral) generally accepted rules and standards.

Programmes with high sums insured, especially D&O, or liability or financial lines, or with a very broad policy wording.

First of all, we will ask IAIS to create a working group or subcommittee to study, develop and produce a proposal. Then, stakeholders will be invited to meet, discuss and prepare a draft wording which can be diligently discussed and presented to the IAIS secretariat and executive committee to be finally approved by the executive committee.

Now, we are asking insurers who are active in cross-border business to support our action, which will be in the best interests of the entire insurance market and its customers. We very much appreciate the backing of all colleagues, from the industry and their local and international associations, as well as from the broker side or some local supervisors which may help us to start introducing and establishing the working group within IAIS.

• What aspects of global programmes does ECIROA want the International Association of Insurance Supervisors (IAIS) to look at?
• Does this apply to global programmes in general or particularly when there is a captive involved?
• How does the compliance issue most affect companies with complex global programmes? Coverage, accounting, tax, other?
• What classes of business are most affected and why?
• What action would you like to see from the IAIS?
• What would you like European commercial insurance buyers to do, either through their associations or individually?

FERMA shares the objectives of the campaign by ECIROA. These issues are important, especially for larger organisations. Risks for these organisations can be complex and demand enterprise-wide, global solutions.

FERMA plans to collect the opinions of member associations and produce a coordinated message. The FERMA European Risk and Insurance Survey in 2014 provides a great starting point for evidence in support of a desire by risk managers to be able to set up international insurance programmes more efficiently, effectively and safely. This working group will create a document that addresses why international insurance programmes are used by large organisations, what the benefits of such programmes are and how they might help European companies to do business abroad.

This is not a new subject – far from it – but it is one that requires more noise to encourage buyer and supplier stakeholders to stand up and attract attention – and a call to action.