Expert Commentary

Global Auto Programs See Growth

Risk managers are beginning to implement worldwide commercial auto insurance programs. This report from the 38th RIMS Conference examines some of the reasons and the challenges.

Auto Risk Management
May 2000

Large insurers, along with international brokers and risk managers with worldwide operations, are developing and implementing global auto insurance programs. The global approach to insurance coverage has been in existence on the commercial property side for the last 10 to 15 years. Many of the international general liability exposures have been handled globally for the last 8 to 10 years. Worldwide commercial auto exposures have proved elusive as respects global programs until the last 2 years, although the usage here still does not come close to the usage on the property and commercial liability exposures.

This subject was covered in one of the many insightful seminars at the RIMS Annual Conference held April 30–May 5 in San Francisco. The seminar, "Global Auto—No Longer an Oxymoron!" was led by Elizabeth Demaret of Near North National Group and Val Rosser of DANKA Business Systems PLC.

There are numerous benefits to the global auto approach. First, there are large economies of scale that can be experienced by companies with worldwide operations. A company with at least 1,000 autos can enjoy substantial benefits, including enhanced coverage considerations, pricing considerations, and consistency considerations, according to Ms. Demaret, who is vice president—International of Near North National Group. Second, there is underwriting consistency with one point of leverage. Third, loss control programs can be improved and expanded under a global auto program. Fourth, and the key issue from Ms. Demaret's perspective, claims management can be facilitated through one insurer system as compared to a large number of systems. Fifth, centralized control is not only an important focus but also a necessary requirement prior to putting the program into place. Sixth, a global program offers a great deal of flexibility. Countries can vary a great deal on insurance requirements. For example, some countries may not allow high retentions; others may not have any restrictions on them. Thus, a well-designed global program will allow high retentions for some countries and first-dollar programs for other countries.

Numerous factors have impeded the progress of auto consolidation programs as compared to some of the other lines. Nearly every country requires that an admitted insurer provide coverage, so it is essential to utilize an insurer with a global reach. In addition, gathering documentation has proven to be a big hurdle for many companies. Ms. Demaret noted that in Italy, the rule is "one auto, one policy." She amplified this point by saying, "The documentation required for an auto policy is prohibitive. If you add to that not just the policy but an ID card and you're talking about a fleet of 2,000 vehicles in 20 countries in [an insurer] that maybe doesn't have the same computer capabilities, you've got a long haul in front of you to get everyone documented in order to be able to drive the vehicles."

The legal requirements for automobile insurance can vary a great deal among governments, which adds to the difficulty of creating an auto consolidation program. Automobile insurance is one of the few coverage lines that are compulsory in every country, but each country has differing regulations and requirements. For example, the required limits of liability vary by country. In some countries, there is unlimited liability; in other countries, there is no requirement. Claims handling can be very different in various countries as well, with the types of claims seen often weighted differently. For example, insurers often have to deal more frequently with uninsured motorists claims, as the cost of insurance can be high compared to people's income, especially in developing countries.

Companies with international exposures have to deal with additional complications, including the following.

  • Language—Insurers have to deal with the different languages used on the policy and the nuances in the languages of insureds and claimants
  • Terminology—One loss can result in numerous and varied loss descriptions from different countries, and the translations of these descriptions will further fragment any remaining consistency.
  • Currency exchange—Dual currency exchange rates based on whether the claim is already paid or is outstanding.
  • Culture differences—This factor is particularly prevalent in Islamic and Far Eastern countries.

Nevertheless, many trends have prompted the push for global auto programs and to overcome the hurdles mentioned. First, risk managers look at global auto programs as a way to gain control, enhance leverage, and achieve price effectiveness. Thus, many multinational companies are pushing their insurers to develop and implement these types of programs. Second, insurers are more global in their reach. They are making inroads in getting loss information and loss runs in one centralized locale, which has been one of the biggest obstacles in the past. Third, better information technology provides the backbone to claims handling. The vast improvement and growing sophistication of risk management information systems (RMIS) have made a big difference in this area.

The most common features of a global program include a master policy, local policies, and evidence of insurance. The master policy would be issued in the United States, designed by the risk manager, along with the broker and insurer. Local policies are then issued in each country to reflect their exact standards and required limits and to evidence the coverage. Finally, auto ID cards are issued per the standards required.

Insurer qualifications are an important facet in designing and implementing a global auto program. It is important to deal with insurers that have a global network. Some of the insurers mentioned were ACE USA, AIG, Allianz, CGU, Royal, and Zurich. It is important to deal with insurers that have a commitment to these programs and have a high level of stability. According to Ms. Demaret, an insured "cannot put in an auto program and 2 years later remarket it. These are 3- to 5-year deals, just because of the administrative effort, claims flow, and everything you will need to do to put an auto program in place."

In addition, insurers will need to have local licenses in place, a strong and versatile claims system to handle the intricacies involved, a well-established information technology infrastructure, and a commitment to loss control.

Val Rosser, director of risk management for DANKA Business Systems PLC, described her real-life experiences in establishing a global auto system. Her company has a fleet of 8,000 vehicles, and she has been working for 2 years to fully implement her global auto program. She stressed the need to gather basic information from each country, including the following essential

  • Number and type of vehicles—the schedule
  • Three to five years of claims history, which is often difficult to obtain
  • Existing coverage conditions, such as physical damage deductibles and liability limits requirements
  • Incumbent insurers
  • Present premium pricing, but this should not be the overriding consideration

This information is not easily garnered. There are three sources of this information—local management, insurers, and brokers. Local management in the company can provide this type of information, which can then be used to compare to information from outside sources. Insurers are another source for this information, and it is essential to maintain a continuous and positive dialogue with them. The local brokers in that country can also assist the risk manager a great deal. According to Ms. Rosser, this is a vital link. "This can put the local country brokers on notice that possibly they might lose the business, that you might change to a global [insurer]," she said. "And it's important if you can deal with your local broker and if you can explain to them your goals and objectives as a company and how they can help contribute to the success of your program; then, 9 times out of 10, you can get the information you need."

When formulating this program, the risk manager should establish the following process steps.

  1. Gather the basic information listed above.
  2. Analyze the claims data. Research the types of claims that are being experienced and in which countries they occur.
  3. Decide on the program design. Should it be an international program, which consists of difference in conditions (DIC) policies over all the local auto policies, or should it be a true global program?
  4. Create a thorough and well-designed submission for the various insurers.
  5. Select the optimal proposal from the various insurers.
  6. Implement and monitor the program.

Lastly, Ms. Rosser advised attendees to be prepared to change the program's implementation date. She strongly emphasized that this can easily turn into a multiyear project. "Don't ever make a global auto program your goal for that year," she warned. "That may not happen. It takes a long time to get the information, and things can change in your company."

Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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