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Insurance compliance problems hinder global programs

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STOCKHOLM—Members of the insurance industry must work together to solve the problems of compliance associated with global insurance programs, delegates at the Federation of European Risk Management Assns.' recent forum were told.

Experts gathered Oct. 2-5 at FERMA's forum in Stockholm said concerns still exist about global programs' compliance with local insurance and tax rules and that insurers, brokers and risk managers should work together to pool their knowledge to avoid the risk of fines or revocation of licenses.

“I am paid to provide an insurance policy that is compliant everywhere we have operations,” Helen Hayden, group insurance risk manager at London-based Prudential P.L.C., told a forum panel session.

“In a time of crisis, I want to be able to rely on my policy,” she said, rather than on “somebody else's,” such as a broker's errors and omissions policy.

Ms. Hayden, who is part of the London-based risk managers' association Airmic's efforts to start a comprehensive database of insurance and tax laws, said that while all buyers need different global programs—”because we are all different”—there is a need for a single database of laws and rules in order to give risk managers peace of mind that their programs are compliant wherever they operate.

“We need access to data because the risk, ultimately, lies with us,” she said.

“We want the profession as a whole to come together to work to solve this problem” so that risk managers can be sure they have not bought programs that are noncompliant, she said.

John Hurrell, CEO of Airmic, said the association is in discussions with other risk management bodies and insurers about devising a single, open-source database. Longer term, he said he hoped that a global database updated by regulators every time there is a change in their laws could be established.

Peter den Dekker, the outgoing president of FERMA, told delegates at the forum that he fully supported Airmic's efforts to devise a database and said he hoped that by the time of FERMA's next forum in fall 2013, the issue would no longer be a discussion point.

Mr. den Dekker called on the industry to “start moving to a solution.”

“We need to keep the pressure on,” he said. “We don't have time to build something new and reinvent the wheel.” Insurers already have existing sources of information, and it is time for collaboration, he said.

When underwriting and purchasing global programs, insurers and buyers need to find a balance between “cost, coverage and compliance,” said Praveen Sharma, global leader of insurance regulation and tax at Marsh Inc. in London, during the panel session.

There is no “one-size-fits-all” global program structure, said Martin Strnad, legal counsel for Zurich Financial Services Ltd. in Zurich.

And there are various nuances to the way laws are applied depending on how risks are underwritten, he said.

“We need a database that takes care of all these nuances,” Mr. Strnad said. “We at Zurich have one, but a database (alone) cannot capture each and every specificity,” he said.

He added that a common set of data that could be applied to the various individual situations of buyers is needed.

The problem for risk managers is the “level of difference in interpretation” of rules, said David Batchelor, London-based CEO for Marsh Inc. in Europe, the Middle East and Africa, in an interview.

“There are risks with the structure of any program,” said Lex Baugh, London-based CEO for Europe for Chartis Inc., during a CEO panel discussion during the forum. “We need to understand what each client's tolerance of the risk is,” he said.

“We are in danger as an industry if we try to make it look like there's such a thing as 100% compliance,” he said. “It doesn't exist.”

“I think the industry should come up with a standardization in terms of approach,” he said. Industry bodies should help their members, and underwriters should help buyers understand what the limitations of compliance might be, he said.

One solution might be for the industry to come together to provide a database of “the lowest common denominator” of information that would be managed on a consistent and transparent basis, said Marsh's Mr. Batchelor, and “above that, anything else could be a competitive differentiator” for underwriters.

While a database is important, it also is important to understand local practices and have employees on the ground, said Yves de Mestier du Bourg, head of the international network of AXA Corporate Solutions, a unit of AXA S.A., in Paris.

He added that it is vital to have input from national regulators, as laws often are open to interpretation.

But Mr. Sharma called upon insurers to abandon their “egos” and cooperate on this issue, rather than using their proprietary databases as competitive differentiators.

“It is a no-brainer,” he said. “We need to pool our knowledge and our resources.”

He said that proprietary systems had not been shown to lead to insurers necessarily gaining more business. Insurers, he said, should focus their efforts on what they are good at—underwriting and claims—and use those as differentiators. He said there should be a single database on compliance used by the whole market because, among other things, it is frustrating for risk managers when they have bought programs underwritten by more than one insurer to find that there are differences of interpretation within those policies.

Zurich recently began offering its database to brokers via a licensing agreement, said Thomas Hürlimann, CEO of the global corporate business of Zurich, in an interview.

“Zurich would like to contribute to a global standard” on global program compliance, he said. “We want to move our industry to the next level.”

The database is updated constantly and covers 180 countries and 41 lines of business, he said.