Regulatory changes, extreme weather and political instability top cross-border concerns

StrategicRISK’s inaugural annual conference in Asia, which was held in Singapore last week, featured the panel discussion ‘New Frontiers: How to manage the risks of operating across international borders’.

The panel for what was one of the day’s most keenly anticipated sessions consisted of vice-president, group insurance, group risk, Barclays Bank Geetha Kanagasingam; vice-president, finance and purchasing, Shangri-La International Hotel Management Parikshit Sen Gupta; governance and risk manager, DKSH Management Eric Lee Chuin Howe; and underwriting director at Zurich (Singapore Branch) Li Shan Yeo.

Participants kicked off the debate by highlighting the importance of extending risk mitigation plans beyond a company’s main supplier to include assessments of third- and fourth-tier suppliers.

Concerns that some businesses may disregard contractors further down the chain were discussed, with the panel concluding that third- and fourth-tier suppliers could suffer the same or similar level of risk exposure as a main contractor.

ERM was another key discussion point, as delegates raised questions over the challenges of implementing the framework across Asia Pacific, where ERM maturity differs from country to country.

The take-home message was that a one-size-fits-all approach was unrealistic. It was agreed that to successfully embed ERM, risk managers must adapt and align their risk or ERM strategy with the mindset and cultural differences of the country in which they wish to implement the framework.

Compliance challenges

Following the discussion, Zurich’s Li Shan Yeo (pictured) told StrategicRISK that she thought there were three main risks faced by corporates operating across international borders: Regulatory changes, extreme weather and political instability.

Li Shan explained that planning an efficient and cost-effective multinational insurance programme was becoming ever more complex as regulation increased around the world. 

“With the global economy in expansion mode once again, Asian multinationals may be exposed to unfamiliar legal systems and faced with compliance challenges in the jurisdictions they operate in,” she said.

“Complying with local insurance regulations and laws is of increasing importance for multinational businesses as lawmakers across the globe, especially in emerging markets, increasingly take an interest in previously unregulated or loosely regulated activities.

“This compliance could prevent unanticipated reputational, tax or financial repercussions.”

Multinational insurance programmes offered a range of benefits for a corporation, Li Shan said, including integrated and consistent cover worldwide that allowed for centralised control over risk management and risk transfer practices.

“Yet intensifying regulatory pressures in certain jurisdictions are making it more difficult for multinationals to insure global risks on a consistent basis,” she said.

“And for a multinational, relying on separate local insurance policies alone will not fit in well with providing globally consistent coverage, as well as being a costly option.”

Li Shan explained that many territories allowed non-admitted carriers, offering multinationals a cheaper overall alternative than using a range of local insurers, as well as providing additional wraparound coverage that supplemented required local policies to cover the difference between that and a master insurance policy of a multinational, which is generally arranged in the domicile of the parent organisation.

“However, almost all jurisdictions have certain conditions of use around non-admitted insurance and also now seemingly want to collect a greater portion of the insurance revenue, using local laws to achieve this,” she said.

Contractual requirements

Li Shan pointed out that international programmes were quite complex and you could only begin to structure a solution that truly matched the requirements of a client if you had a good understanding of all aspects of a multinational, such as its risk management strategy, and global and local contractual requirements.

Multinationals needed to partner with an insurer who had expertise on the ground in all the major markets, as well as a global administration system to manage clients’ insurance programmes in these countries, she said.

This would allow for “oversight on policy issuance across the globe, providing contract certainty, tax payment and peace of mind from day one,” she added.

Zurich was a partner sponsor of Strategic Risk Forum 2014, along with AIG, Marsh and Swiss Re Corporate Solutions and Zurich; associate sponsors were ACE Group, Allied World, Lloyd’s and XL Group.

The event was supported by the Risk and Insurance Management Association of Singapore (RIMAS) and the Pan-Asia Risk & Insurance Management Association (PARIMA).