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As U.S. multinational companies expand their operations, risk managers increasingly are instituting global programs for their corporate risks, consultants agree.
The change toward a more international perspective among U.S. risk managers is "a natural evolution resulting from the global expansion of U.S. companies," said David Tibbals, president of Atlanta-based D.L. Tibbals Risk Management Consulting Inc.
Most companies with international exposures seem to be opting wherever possible to establish a global risk management program, though they are not always conscious of the possibility or the advantages of this until they ask their broker, insurer or consultant to assess their exposures, he said. Mr. Tibbals said he is seeing more clients that want a primary policy with a high liability limit that covers their U.S. and international risks.
Part of the service his firm provides is to help risk managers take a global perspective in identifying and cataloging their exposures, which gets them through "three quarters of the battle" in dealing with the problem, Mr. Tibbals added.
Among the risks that must be looked at in this way are business interruption exposures, terrorism and foreign exchange risks, he said.
Richard S. Betterley, president of Betterley Risk Consultants Inc. of Sterling, Mass., reports a "brisk" rise over the past few years in the number of existing and new U.S. clients seeking help in dealing with non-U.S. exposures.
One manifestation of this is the growth in alternative risk transfer for some global exposures. For example, buying protection through capital market products is proving appropriate, particularly for political risk, said Mr. Betterley.
Similarly, more foreign companies have sought Betterley Risk Consultants' help in dealing with the exposures of their U.S. subsidiaries. Mr. Betterley has encountered "consternation" on the part of these companies that the expertise is not available in their countries to deal with the risks they face in the United States, such as liability. Even some of those that use global brokers think the local branches of these firms are not always sufficiently informed on U.S. risks, he says.
The rate of change among U.S. companies considering risk management matters on a more global basis is far too slow for Michael Rodman, executive vp of J.H. Albert International Insurance Advisors Inc. of Needham, Mass.
"In our experience, there is a certain lack of sophistication on the part of risk managers in dealing with their international operations. . . .There are a large number that aren't taking advantage of the opportunities to consolidate and apply universal risk management practices," he said.
This situation sometimes results from risk managers' lack of awareness of their options and of the global insurance programs available to them, Mr. Rodman added.
He said lack of awareness of available programs is greatest among risk managers at small to midsize companies, many of which may be using full-time risk managers for the first time.
Too often, U.S.-based multinationals have a "hands-off" approach and don't exert the same risk management control over their overseas operations as their units at home, Mr. Rodman contended. As a result, companies are not always managing their risks or protecting assets as well as they can.
However, Julian Phillips, a London-based risk management consultant with Tillinghast-Towers Perrin, noted that while European risk managers started operating global risk management programs well ahead of their U.S. counterparts, U.S. companies generally tend to be more centrally controlled than those in Europe and so require their foreign subsidiaries to follow U.S. practices.
This tends to help U.S. risk managers in covering different areas of global risk. For example, while European companies may have been first in harmonizing their global insurance programs, U.S. multinationals have been at the forefront in areas such as unifying health and safety standards.
With global insurance programs already well-established for property and liability risks-at least among European-based multinationals-risk managers increasingly are turning their attention to health and safety issues, Mr. Phillips said. Many countries maintain strict regulations on health and safety matters, which leaves improvement of standards as the only way corporations can reduce costs.
Not all consultants, particularly those in units of the major global brokers-which tend to attract those clients who are more internationally active-think the pace of change toward global risk management programs among U.S. companies is slow.
Philip Gawthorpe, senior vp of Aon Risk Services Global in Chicago, said U.S. companies have been moving in this direction for at least the past 15 to 20 years, though the past five years have seen a real "explosion of growth in demands for global risk management solutions."
While the bigger companies have been doing this over the longer period, the dramatic increase in growth is coming from small to midsize companies that are beginning to export and expand their operations abroad, he said.
Risk managers not only want their insurance transacted globally, but they also want the same systems of risk management throughout their operations, Mr. Gawthorpe added. This includes exporting higher quality and loss control standards to overseas operations where possible and increasing spending to protect their facilities worldwide, he said.
Insurers and brokers are adapting to these needs, and it has led Aon Risk Services to develop two new products recently.
Global Edge, launched last year, is a comprehensive package for exporters doing business in several locations that combines coverage for risks ranging from kidnap to liability, extortion, cargo insurance, automobile and property.
The other product, which is expected to be released in the middle of this year, will be an overseas vehicle fleet program offering elements of loss control, specialized claims handling and up-to-date legal advice on matters such as local drunk-driving laws.
Where the risk manager of an international company does not take the initiative in examining his exposures on a global basis, risk management consulting firms increasingly are advising them to do so.
J.H. Albert encourages its clients to think more globally and try to persuade management to see the advantages of doing so. "Ultimately, what we try to get our client to adopt is a true global risk management program. . .in a consistent way throughout their global operations," Mr. Rodman said.
"They know the concept, but getting it into place is not a fast or easy process," and, as a result, "it isn't changing as rapidly as I thought it would," he said.
Betterley Risk Consultants similarly tries "to coach and cheer on" its clients to look at matters on a global basis while still deciding what is appropriate locally.
Mr. Betterley said this often entails using a local broker who knows the market well, but for him it means otherwise helping clients to "build the process" by which they can gather the knowledge to determine what is appropriate action to take to each locale.
However, consultants agree that risk managers have the ball in their court when it comes to arranging the kind of global risk management programs they want.
According to Mr. Rodman, the risk manager must be a "change agent," pushing insurers, which tend to be more reactive, to provide global programs.
Risk managers have a great deal of clout, and brokers often will help put together whatever package a risk manager wants, Mr. Betterley said.
Hugh Loader, president of the Federation of European Risk Management Assns., said that with the soft insurance market, "underwriters will be more flexible about doing what the client wants."
Also, the consolidation among major brokers, and their move toward doing more work on a consulting basis, means "you can get whatever you want" as a risk manager.
"I think that any consultant is likely to take the view that if they don't put forward the program you want, somebody else will," he said.