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Global program requires local understanding: Risk Management Summit<sup>®</sup>

Posted On: Feb. 29, 2012 12:00 AM CST

Global program requires local understanding: Risk Management Summit&lt;sup&gt;&reg;&lt;/sup&gt;

NEW YORK—To successfully build a global insurance program for a multinational company, it's necessary to have a thorough understanding of the places where the company does business, according to the risk manager of one global company.

Speaking Wednesday at Business Insurance's annual Risk Management Summit® in New York, Jorge D. Luzzi, group risk management director of Pirelli & C S.p.A. in Milan, said, “If you want to do business all over the world, you need to open your brain to what goes on in the countries where you go.”

Delivering a case study during a session examining the risk of global expansion, Mr. Luzzi said it's necessary to consider local factors such as values, customs, how locals manage obligations, whether they're flexible, their language and religion to address a company's approach in addressing global exposures.

The company also must understand what it's selling to the rest of the world, Mr. Luzzi said.

On a panel further examining global risk issues, Mary K. Cline, director, corporate advisory services at Eurasia Group in Washington, said the nations that offer the greatest economic growth likely present challenges from an insurance and risk perspective for global companies.

Noting that studies show few companies have integrated political risk into their enterprise risk management efforts and business models, Ms. Cline said, “The biggest kind of black swan right now and the one that everyone is looking at is a kind of political risk.”

Another panelist, Thomas A. Lawson, executive vp at Johnston, R.I.-based Factory Mutual Insurance Co., which does business as FM Global, said insurance is a highly regulated industry around the world, but “it's pretty inconsistently regulated.”

The keys to a successful global insurance program, he said, are to make sure partners have good financial security and an effective global network, that the company's insurance program complies with local requirements and that the program provides contract certainty. “The loss always finds the hole in the policy,” Mr. Lawson said.

Panelist Peter D. Laun, a partner with law firm Jones Day in Pittsburgh, said it's important to consider the relationship between the global umbrella insurer and the local insurers in crafting a global insurance program.

Local experience is key in many coverage situations, Mr. Laun said. Even if a loss is addressed in the global master policy but it's a loss not typically covered by local insurers in the country, a local insurer might say, “We don't pay that,” he said.