DAN REYNOLDS is senior editor of Risk & Insurance®
The greatest folly in arguing for a local coverage approach to your insurance program is this: No insurer, not even at its most hubristic, allows itself to be deluded into believing that the financial service it provides dictates the machinations of the world's economy.
Insurers are great holders of capital for that very reason; that is how they are rewarded for their relative humility. Don't get me wrong, those vast stores of capital have their influence as buyers of bonds and equities.
But in the operations of the business of providing coverage, rather than dictate how the world trades and consumes, insurers merely follow the primary economic movers and place their bets accordingly. And so what is happening in business? It is becoming more global, is it not, and less local.
Why do you think, those of you here in the United States, that you are paying more for your steak and potato now than you were last year? It is because your grocery budget is being affected by international forces and powers of supply and demand.
That is why the European Union, which far outclasses the United States in the area of risk management, has for decades been establishing a system of international insurance regulation. These regulations allow insurers to carry on business within the EU, subject to national regulation. And why do the insurers like this? They like it because it reduces their costs.
And why would an insured benefit from a multinational program? For the same reason, it would reduce their costs.
No manager who can help it wants to take on redundant costs. But that's what risk managers of multinationals sign on for in managing insurance programs in the United States, which boasts 50 different regulatory regimes.
State-based regulators can huff and puff all they want, but if it were to come to pass that the leaders of the Federal Insurance Office rub elbows long enough with European regulators they will become enlightened and want to change tack. Oh, and what a fight it will be and how much noise it will make?
So, who does a more comprehensive approach hurt and who does it help in the near and middle term. Of course a move toward master, global insurance programs will benefit the large global insurers who have networks in many, many countries; this is for the admitted markets only of course.
But for those managing insurance programs, master insurance policies that cover as much of a company's global reach and exposure are preferred. That is because risk managers should be nothing, if not control freaks. They want their hands on every risk management string because they need standardized cost evaluation and standardized loss reporting.
June 1, 2011
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