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Thursday, April 30, 2015 - 02:16
Getting the right balance

With more and more brokers operating across borders into Africa, pressure is on to develop effective Pan African Insurance programmes.

The relative head office will want a programme that is identical in look and feel across all territories, but must counter this with the specific needs of each territory. Then there is the overriding legislation of the regulatory bodies in each territory. This will dictate what cover can and must be written and what level of cover can and must be externalised.
Paul Lewis, Price Forbes head of African expansion, says the real challenge lies in understanding what each of the different parties are looking for and finding a solution that addresses most needs. He notes that at head office level consistency is key. “Remember, an insurance philosophy is firstly articulated at group level and then applied consistently down throughout the group to each territory. Areas such as centralised control over purchasing decisions and claims settlement; ease of administration and the ability to purchase the broadest scope of cover possible to cater for group-wide exposure are all key factors that need to be taken into consideration.
“Furthermore,” he says, “because head office usually enjoys a more robust cash flow position than individual subsidiaries, it also has a larger appetite for self-insured retentions than local offices. When combined with the promise of large savings, or bulk discounts due to the aggregation of the portfolio, this drive towards consistency and centralised control is very appealing to head office level decision-makers.”
From a local office level, the view of a successful placement is, however, quite different. Lewis says large self-insured retentions can feel onerous if not smoothed out by regular cash flow and a strong balance sheet. “Often local territories question why they are paying for elements of cover that don’t apply to their specific operation but have been included in a group programme because of its relevance to another operation. For them, group wide consistency is also less important than locally- based servicing that they can access easily via a local broker. The services aspect of the programme becomes especially important to the local office at the time of a claim.”
From a regulatory perspective, the rules around what must be retained internally versus what can be externalised, differ per territory according to the sophistication of each market, its capacity, and the degree of expertise in each market. Some territories will be able to retain the entire risk in country, while others will be forced to externalise some, or part, of their risk. “This means various territories’ risks could attach to an overarching ‘global’ programme at different levels. This in turn could affect the scope of cover that each country enjoys as there is variation in policy wordings between territories.”
A successful insurance programme needs to balance all three needs as best as possible. He recommends starting by taking one’s cue from the regulatory environment. The second step involves performing a holistic risk review to establish the group-wide exposures. The broker must share a bird’s eye view of the entire portfolio with head office where the process of centralised planning can begin. Lewis says at this stage a high degree of coordination and planning is needed to ensure that there are no overlaps or gaps in cover and that the group as a whole is aligned to a single, consistent insurance philosophy.
The channels through which premiums and claims flow through the organisation must be established and protocols regarding claims notification, settlement agreements must be agreed. The broker must take a very structured approach to programme design in order to ensure that the programme is cost effective, efficiently administered, and easy to monitor.
The final stage involves the introduction of a degree of bespoke tailoring at country level. “For example, a single operation may have a specific need for a class of cover not required by the balance of the group. Or, depending on head office level philosophy, some operations may choose to buy-down deductibles in the local market.
The approach allows the country office to satisfy their need for specificity, while still leveraging off the group placement.

Copyright © Insurance Times and Investments® Vol:28.4 1st April, 2015
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