April 17, 2024

Multinational insurance – a multifaceted risk approach

4 min read

The design, placement and implementation of a global insurance programme is a complex proposition even under the best circumstances. Obstacles such as inconsistencies between local insurance and regulatory environments, exposure information that can be difficult to collect and collate, limited understanding of risk exposure, and unavailability of cover and/or capacity in certain markets compound with the immutable fact that all multinational organisations that may be suitable candidates for global programmes have unique organisational structures and needs.

As outlined in Aon’s latest Global Risk Management Survey, these challenges are further heightened by the continued macro-economic and geopolitical volatility including the economic slowdown, increasing severity of weather events, significant currency/FX fluctuations and inflationary pressures – all of which are contributing to a landscape wherein it has never been more challenging, and yet more necessary, to consider risk in a complex, global and interconnected way.

Although the outcome of the 1 January 2024 treaty renewals has not been released yet, we are hopeful for a more favourable cycle from what South African multinationals were faced with in 2023 in the form of difficult underwriting negotiations, characterised by stricter standards, coverage limitations and a general lack of capacity.

A multifaceted risk approach

Successfully compiling a comprehensive insurance solution that speaks to key risks across a multinational framework requires a multifaceted approach: both overcoming the challenges inherent to a complex global insurance placement as well as accounting for the contemporary economic environment into which a complex global insurance programme will be placed. This is according to Thuli Majodina, business unit head of Aon Global Client Network (AGCN) and regional controller for sub-Saharan Africa. Aon’s AGCN comprises more than 1 200 professionals in 120 countries within 500 offices.

“Risk mitigation needs to be a long-term strategy where organisations consider various mechanisms that underpin the protection of assets and the business itself – insurance is but one facet of this strategy,” Majodina explains. “With global markets thrown into economic turmoil, organisations need to reassess where conventional insurance cover will be practical while taking capacity issues and existing lines of cover into consideration.

“Evaluating the merit of alternative risk transfer mechanisms, such as building funds to bridge gaps in cover or considering parametric insurance solutions where applicable, is also key where practical for an organisation. Continued investment activity on the continent opens opportunities for the placement of insurance solutions in various territories – supporting local economies but also leveraging international market support.”

As we usher in 2024, there is a heightened need for a more pan-African approach. “There is a need to develop insurance solutions on the continent to increase the premiums that are retained on the continent, which avoids currency/FX fluctuation while ensuring insurance becomes readily available and accessible on the continent so that over time the pricing is reduced – with the ultimate goal of making sure African insurance premiums become more competitive and affordable.

“Having said that, this process will take time, and a blended approach that incorporates international markets offers a more cohesive approach at present,” Majodina adds.

The power of data

Having a clear understanding of how insurance is approached in each country is crucial and requires navigating capacity constraints, specific legislation and tax laws in the making of a well-rounded multinational insurance programme.

“The reality is that there is no ‘global standard’ or framework for insurance regulation or a consistent application of insurance law worldwide, which makes compliance analysis of local regulations governing insurance in every country critical. Closing the gap between insurance covers that are in place from a global perspective and what is available from a local point of view can be a complex and dynamic task,” says Majodina.

“The ultimate objectives of a multinational insurance programme are to maximise global insurance capacity, minimise cost and maintain centralised control over risk management and risk transfer practices, consolidate loss information to enhance loss control practices and procedures while ensuring a consistent global approach to coverage terms that meet all necessary local regulatory requirements. Finding the right balance is achieved by bringing together knowledge and international experience, the methods that underpin the process, and the people and systems deployed,” she elaborates.

“By combining our global network and local expertise, Aon offers multinational organisations a fully diversified business offering that caters for the risk management needs of a multinational business, with the people who will be servicing the multinational insurance programme making it accessible in the country and at a centralised global level. Fundamentally, it’s about achieving consistent worldwide protection and limits, while addressing each operating country’s regulatory and servicing requirements.

“It is critical to engage with a broker that is operational in several countries, that has the knowledge and experience of an extensive global network at their disposal to provide your organisation with the necessary data and insights that will help your multinational organisation make informed decisions when it comes to cross-border risks, tracking of business, economic and political trends, compliance with country-specific insurance and regulations,” Majodina concludes. 

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