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Survey Report

Insurance Marketplace Realities 2020 Spring update – International casualty

Casualty
COVID 19 Coronavirus

May 7, 2020

When considering the metrics for success, we recommend taking a holistic approach that looks at coverage terms, price and how effectively information and service is delivered.
Rate prediction
  Trend Range
Non-cat Neutral decrease increase (green triangle pointing down, yellow line, purple triangle pointing up) Flat

Key takeaway

When considering the metrics for success with international casualty as well as any other multinational lines, we recommend taking a holistic approach that looks at coverage terms, price and how effectively information and service is delivered.

The international casualty marketplace remains a competitively priced buyer’s market, offering pricing stability and opportunities for improved terms. Buyers who will capitalize most effectively are those who:

  • Deliver clear and consistent underwriting data and related documentation.
  • Leverage their purchasing with strategic carrier relationships.
  • Demonstrate that they have communicated detailed risk management protocols with their various stakeholders.
  • Partner with their broker, carriers and internal teams to take a disciplined approach to the renewal timelines, allowing for a thorough review of localized coverages and claims handling plans.

Rate stability generally prevails, and reductions and/or coverage enhancements are available — with certain caveats.

  • As organizations look to measure the quality of their global programs, issues beyond price should be a priority. The most effective carrier partners are often those who drive and document accurate and timely policy delivery, deliver quality post-binding services around the world, and offer an insured the ability to influence localized policy coverage terms.
  • The overall portfolio of insureds purchasing international casualty coverage continues to grow, particularly in the middle market space.
  • Carriers who write global lines of coverage are often able to partner with insureds on other lines, offering the opportunity to reduce overall cost through economies of scale.

Capacity remains available, despite outside pressures.

  • The full impact on insurers of the global economic downturn caused by the COVID-19 pandemic is uncertain, but for now, in the aggregate, rates remain stable.
    • Reduced interest rates will impact carrier investments and overall profitability, though the extent of the impact will depend on several variables.
    • Other P&C lines continue to see rate increases, which may begin to influence underwriters of international programs to follow suit and raise rates.
  • So far, these trends have been counteracted by the continued introduction of competing market entrants and a desire by established carriers to maintain market share for a line of business that generally does not experience significant claim activity.
  • Certain additional capacity is available from carriers who have historically only written U.S. domestic lines and are looking to expand their offering to include international P&C. For some markets who do not own their own global office network, that means establishing network partners who can issue and service policies around the world. Additional competition emanates from European carriers with experience writing international casualty who are expanding their offerings to include U.S.-domiciled insureds.
  • For certain insureds with large and complex international risks, European-based markets can offer distinct benefits by tapping into an alternative access point.
    • Higher primary limits and expanded coverage territory may be available.
    • Higher or full limits may allow insureds to evidence certain unique coverages, such as pure financial loss and extended products liability.
    • These extensions can be evidenced on the master policy, offering wider coverage territory.
  • Recent global carrier mergers have yet to reduce the abundant supply of capacity. In many cases, the M&A activity, as well as the development of strategic partnerships in the marketplace, have enhanced market offerings by bolstering underwriting depth, expanding capabilities (in various lines of business, claims, loss control and technology) and broadening international office footprints.
  • Multiyear agreements are available in some instances and can offer coverage and rate certainty and decreased administrative burden.
  • While the current marketplace offers opportunities, there are also underwriting challenges: Underwriters want clear and consistent exposure information from insureds, limiting or even removing the ability to obtain coverage for “if-any” exposures, as well as excess DIC coverage, without clear details about the primary coverage in local geographies.

Combining P&C into packages may have strategic advantages, but buyers need to be aware of the impact the hardening property market may have on the combined program.

  • Impacts range from limited (if any) coverage for catastrophic events to larger minimum deductibles.
  • Buyers can take steps to minimize these negative pressures:
    • Deliver clear and consistent underwriting data, values and business interruption data, including construction, occupancy, protection, exposure (COPE) information
    • Leverage their position with strategic carrier relationships
    • Demonstrate that they have strong loss controls in place and the resolve to improve their risk profile

Several COVID-19 questions are being raised with regard to international casualty.

  • Within an international casualty program, coverage often includes FVWC, which so far is the most significant target for coverage discussion around COVID-19. This coverage commonly extends to endemic disease with state of hire WC benefits for employees who are working outside of their home countries. However, for coverage to apply, their travel needs to be in the course of business.
  • Coverage may also be triggered within a business travel accident policy for someone who contracts the virus while in the course of business — although several carriers are pursuing coverage clarification.

Brexit’s approach will require attention.

  • As we turn to the implementation of Brexit (scheduled to take effect later this year), carriers and brokers have been preparing by repositioning certain underwriting and/or service functions (e.g., freedom of service (FOS) infrastructure) to alternative European locations (e.g., Luxembourg, Ireland, Spain and Belgium), requiring a fair amount of movement and re-training of staff. Carriers are looking to offer flexibility where they can. However, insureds and brokers are encouraged to seek details where there are unknowns in advance of renewals.
  • As a general note, we strongly encourage insureds to partner with their broker and carrier to weigh the pros and cons of an FOS structure for a casualty program. The benefits that are generally available on a property program are often less clear on a casualty program. Programs that replace local policies throughout Europe with an FOS policy may remove those costs but may also remove country-specific terms that are only available in each country.
  • Additionally, insureds who may have received an FOS policy from a carrier’s U.K. office, also representing local coverage for the U.K., should consider the need and benefits of requesting a separate local policy in the U.K. at renewal.
  • When a renewal involves a potential change of where an FOS policy will be issued, we suggest carefully considering the implications of the governing laws of that policy. For example, the U.K. relies on common law whereas other European countries rely on civil law, and there will be differences in how claims are managed.

Changes in market regulation and issues of compliance are crucial.

  • State-driven regulation and rising protectionism continue to impact the marketplace. For example, federal agencies in some regions are requiring participation of in-country insurance capacity into global programs, which impacts pricing, exportability, control and renewal timing. Buyers should be aware that any restrictions on the exportability of risk and premium will limit the corresponding amount of underwriting and claim settlement authority that can be centralized.
  • Insurance and tax audits as well as requirements for insureds to provide know-your-client (KYC) documentation are evidence that local regulators are actively seeking to ensure that programs are locally compliant. While this has become more common in certain regions, including North America, Central America and Europe, requests have also emerged in the Middle East.
  • Enforcement remains prevalent around premium payment warranties (e.g., cash before cover) in some countries, which should encourage buyers and their brokers to be ready to bind 30+ days in advance of renewal.

Global programs of all sizes are becoming more sophisticated.

  • Buyers with smaller international risks may have opportunities to impact their total costs and ensure compliance by taking a centralized approach to certain functions, starting with a focus on the safety of their traveling employees through a global approach to FVWC, kidnap, travel assistance and health coverages.
  • For companies with existing global programs, opportunities are available to streamline operations by leveraging relationships with a select number of global carriers, minimizing coverage gaps and ensuring economies of scale.
  • For the buyers of large, complex global programs, clarity of coverage will be increasingly important, not just at the master policy level, but also at the locally admitted level. Also contracts with third parties may include specific insurance requirements (e.g., unique local coverages and/or higher limits) that need to be contemplated in the program design.
  • Opportunities exist for insureds to expand the breadth of an international casualty program to centralize additional local policies, such as local employers liability and auto, particularly where those risks are significant.
  • Global businesses are experiencing complex claims in a widening array of geographies, requiring a close examination of admitted localized coverages as well as claims handling procedures.
  • Not all carriers offer the same local policy terms and conditions, even within the same country, and this should be considered when marketing a program.
  • One of the ways higher admitted limits can be obtained is by asking the international casualty carrier to raise its master policy limits, enabling flexibility around what limits can be localized. An additional benefit of raising the primary limits is driving pricing relief in the excess layers, an important feature when excess limits are more expensive. Alternatively, an umbrella carrier that has a global network can issue its own local umbrella policy as and where needed. Teams should consider both options and compare associated costs.

Program administration remains an important focus.

  • While international casualty losses tend to be low, the administrative costs of running an international casualty programs can still be heavy for everyone involved. As a result, all parties should look for ways to drive value through efficiencies.
  • Key to delivering a program that delivers value is a disciplined approach to timelines, with teams beginning the renewal process early, documenting clear objectives and tapping into the expanding expertise and capabilities available.
  • International casualty programs require significant administration and collaboration, so rather than differentiate purely through price, carriers and brokers are creating and/or enhancing operational tools, leveraging technology and offering underwriting flexibility and/or enhanced transparency around country-specific coverages.
  • The allocation of premium should be a discussion that begins early. Carriers will have unique approaches and internal guidelines, so insureds and brokers should initiate discussions early in the renewal timeline, with consideration of issues such as exportability and taxes and to ensure timely execution.
  • The marketplace offers a certain amount of flexibility in terms of where international premium allocations can be collected for most countries, providing insureds the ability to centralize most of the cash flow and administration. However, diligence is increasingly important for insureds to evidence a consistent and defensible premium allocation methodology in the event of a program audit.
  • Several carriers supplement the delivery of international programs with online platforms, some of which are made available to insureds and brokers. The ability to reduce friction and improve clarity continues to be a differentiator, so carriers continue to invest in tools that offer transparency into network instructions, posting of policy documents and other improvements in efficiency.
  • Shared online access to claims data remains a topic of conversation for future enhancements.

Alternative risk programs remain an option.

  • The market for fully fronted programs remains fairly limited; however, they can be popular for insureds who wish to control cost allocations and centralize coverage documentation. Carriers that write programs with significant retentions are often well-established and have the underwriting expertise, global network, technology and cash flow capabilities to handle these programs effectively.
  • Programs with a reinsured retention often generate additional administration costs and can attract collateral. Those calculations reflect a number of factors, including the number of local policies, volume of claims, limits issued, etc. Upward pressure on those costs can be mitigated in certain cases by leveraging the relationship with the same carrier across other products.

Disclaimer

Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. COVID-19 is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.

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