Developing Effective Group Risk Transfer Strategies

Alan Duffy
Strategic Account Manager MARIM Int. Conference
20 August 2019
Aon | Proprietary & Confidential 1
Discussion Points

 Programme Challenges

 Insurance Buying Options

 Motivators for Group Programmes

 Global Optimization Overview

 Process & Timeline

 Project Benefits

 Client Examples

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 Programme Challenges
Many multinationals have historically had decentralised approach to risk and
insurance i.e.
– Insurance purchased independently on a local basis with minimal influence from
corporate
– Little leverage on strategic global partner insurance relationships
Potential for:
– insurance purchased within risk retention guidelines (tick box)
– coverage narrow and not responding as intended
– non-compliance with local laws and regulations Opportunity for
– coverage duplication = premium wastage complete visibility,
transparency, and
Inefficiencies including: auditable risk
management
– Little visibility on international premium and fee spend information on a
– Multiple brokers, consultants, insurance carriers global basis.
– Inefficiencies in administration
– Lack of coherent claims notification/settlement process

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Insurance Buying Options

Less Sophisticated Buyers:

Local Non Admitted Gap

Policies Programme Programme

Freedom of
Services
More Sophisticated Buyers: (FoS)

Global Optimised
Controlled Master
Programme
Programme aka Multi-national
Programme

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What is a Group Optimised Progamme?

 An insurance arrangement for a multinational business where a common set of

coverage terms and conditions apply across a coordinated group of insurance
polices.
 It consists of a master policy in a country where the programme is purchased and
local policies in each territory as required.
 Local admitted policies are normally issued on a good local standard basis.
 The master policy is usually broader than the local policies and the limits may be
higher, allowing the master policy to provide cover on a difference in conditions
(DIC) and difference in limits (DIL) basis as and when required.

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 Group Optimization
Proven methodology to:
 Establish a baseline for international risk, premium and fees
 Analyse data to identify areas for improvement across key dimensions, including
Program Structure, Compliance and Communications
 Develop a plan for implementation of a more coherent insurance program in
alignment with corporate objectives

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Motivators
Understand Frictional
Risk tolerance Insurer Cost
& set appetite Security Reduction

Leverage/ Broader Remove Tailored

Economies of Cover Duplication Solution
Scale

Managed Peer Carrier Gap

Local
Claims Bench- Management reduction
Compliance
Process marking Strategy

Global Central
Risk Captive Visible
Management
Engineering Utilisation TCOIR
Overview

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The Process to ‘Best practice’ – Risk Financing Strategy

 Transition away from risk transfer approach

 Consistent approach to strategy across the
Company / globally
 Eliminate duplication of cover
 Consistency of wordings tested against
tolerance and gap analysis
 Creation of carrier management strategy
monitored based on Insurer performance
 Carriers / partners with strong track record
of claims paying ability
 Global / optimised approach has strong
record of generating premium savings
 Monitor total insurance financing against
current spend (TCOIR)

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‘Best Practice’ Group Optimisation
 Understand the strength of the Insured’s balance sheet
 The Insured will understand need for improved data quality and an improved
client profile
 Provide world class submission and strategy backed by industry placement
specialists
 Form strategic insurer partnerships to meet the outcomes of the negotiations
 Centralise service, through a core service team utilizing global knowledge and
with local expertise and contact through a dedicated service team to all of the
Insured’s operations
 A fully managed claims process for equitable outcomes when losses occur

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 Types of Group Multi-national Cover
Protection of Assets/Income
 Property
 Business Interruption
 Boiler & Machinery
 Marine Cargo/STP
 Sabotage & Terrorism
 Crime
 Cyber
 Contaminated Products
 Trade Credit
 Surety
 Political Risks
 Auto Physical Damage
 Aircrafts / Marine Hull
 Travel
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Liabilities
 General Liability, inc Products Liability
 Excess Employer’s Liability
 Excess Automobile Liability
 Directors & Officers Liability
 Cyber Liability
 Accident & Health
 Fiduciary Liability
 Excess Liability
 Professional E&O Liability
 Environmental Impairment Liability
 Aircraft/Watercraft Liability
 Patent Infringement/Enforcement
 Product Recall
 Charter’s Liability
10
 Factors that influence Programme Design
 Extent of International Operations
 Insurance Requirements
 Compulsory
 Non-Admitted
 Contractual Obligations
 Corporate Structure and Philosophy
 Risk Management Objectives
 Communication / Administration Requirements
 Compliance Risk Tolerance
 Claims Settlement

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Example Group Policy Structure

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 CBU
DOMICILE

OPERATIONS
ATTACHMENT
Britannia Refined Metals Ltd

Zn
UK
LIABILITY TYPE GEN
Xstrata Technology Pty Ltd
Xstrata Nickel Australasia Pty Ltd
Xstrata Queensland Ltd

Te
GEN
Xstrata Coal Pty Ltd
Xstrata Coal Queensland Pty Ltd

Cu, Zn, Ni, Cl,

Xstrata Coal NSW
Mining at Westside

Cl
by Hunter Valley Earthmoving

CW PL
Xstrata Coal NSW
Mining at Liddle Mine

Cl
by Hunter Valley Earthmoving

CW PL
Xstrata Coal NSW

Cl
Contractor: Thiess

CW PL
AUD 20M AUD 20M AUD 20M

Australia
Xstrata Queensland Ltd

Cu
Ernest Henry Mining Pty Ltd

CW PL
Carriers: XL Insurance London
Carriers: Great Lakes (Australia)

Carriers: Arch, Newline and CV Starr

Xstrata Coal NSW

Cl
Xstrata Mangoola

CW PL
Carriers: DAC and Others
* Primary Liability: USD 50M

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Xstrata Cumnock

* 1st Excess Umbrella Liability Limit: Top up to USD 200M

Cl
Carriers: Zurich Australia Insurance Ltd
Carriers: Chartis Excess Ltd and Cat XS Insurance London
Management P/L and Others

CW PL
Carriers: Catlin (35%), Chartis (50%) and Syndicate 386 QBE (15%)

* 4th Excess Umbrella Liability Limit: USD 50M excess of USD 325M
* 6th Excess Umbrella Liability Limit: USD 25M excess of USD 475M

* 5th Excess Umbrella Liability Limit: USD 100M excess of USD 375M

Catlin Synd 2003 Lloyds, Zurich Insurance plc UK Branch, ODY Synd 1218 Lloyds
* 3rd Excess Umbrella Liability Limit: USD 50M excess minimum of USD 275M

* 2nd Excess Umbrella Liability Limit: USD 75M excess minimum of USD 200M
Ravensworth Coal Terminal Pty Ltd

Cl
GEN
* Global Umbrella Liability Limit: USD 35M excess of underlying

AUD 50M AUD 50M AUD 50M AUD 50M

Including Excess Top Up and DIC of Declared Underlying Insurances
Xstrata Zinc GmbH (Germany)

Carriers: DAC Synd 386 Lloyds, Zurich Australia Insurance Ltd, Aegis Synd 1225 Lloyds, Newline, AWAC

Zn
GEN

Germany
Xstrata Zinc GmbH (Germany)

Zn
Except for Personal Injury to Contractors &/or Subcontractors which is AUD 250,000 (costs inclusive) any one Occurrence
Asturiana de Zinc SA (Spain)

Zn
ENV IMP GEN

Spain
EUR 2.5M EUR 10M EUR 10M
Xstrata Canada Corporation
Donkin Coal Mine
Xstrata Technology

GEN
First Coal Corporation

USD 5M

USA/Canada

Ni, Zn, Cu, Cl, Te

Xstrata Brasil Exploracao

USD 5M

Ni
(Brazil Exploration)

GEN

Brazil
Carrier: Zurich
Canadian Umbrella
Xstrata Nickel
(DR, Brazil, Tanzania, Barbados,

Ni
Belgium, New Caledonia,

GEN
BRL 3.5M R 1.5M

Various
Ireland and Malaysia)

Xstrata Alloys and Xstrata Coal

South Africa (incl. Eland Platinum)

SA

GEN
+ Xstrata Technology South Africa

Al, Cl, Te
Umbrella

ZAR 185M
Xstrata Alloys
Mototolo JV (Covering

Al
GEN
Xstrata Interests Only)

ZAR 15M ZAR 10M

ZAR 40M
Xstrata Projects Chrome Division

Cl
ZAR 10M

South Africa
Xstrata SA (Pty) Ltd

Al
(Tswelopele Project)

CW PL CW PL
Xstrata SA (Pty) Ltd for the ZAR 50M
El and Fontein Joint Venture

Al
(Western Decline Project)

CW PL
ZAR 100M

Minera Alumbrera Ltd

Cu
OP
USD 25M

Pachon S.A. Minera

Cu
OP
El Pachon Project

Pachon S.A. Minera

A Real Group Policy Structure

El Pachon Project
Cu
CONT

Argentina

MIM Argentina
Cu

Exploraciones S.A.

MIM Argentina
Cu

Exploraciones S.A.
GEN CONT
USD 2M USD 1M USD 2M USD 1M

Collahuasi JV
Cu
GEN
USD 10M

Xstrata Copper Chile SA

Xstrata Chile Fcto
y Proyectos Ltda.
Comp Minera Xstrata Ltda.
Xstrata Norte Exp. y Svcs Ltda.
Cu

Xstrata Chile Svcs Corp. Ltda.

GEN
USD 1M

Comp Minera Xstrata Lomas Bayas

Pachon Transportes y Svcs Ltda.
Energia Austral Ltda.
SCM El Morro.

Xstrata Copper Chile SA

Cu
TPL

Chile

Xstrata Copper Chile S.A.

Cu

(Altonorte Smelter, Antofagasta)

Xstrata Copper Chile S.A.

Cu

(Altonorte Smelter, Santiago)

Xstrata Copper Chile SA

Energia Austral LTDA (Santiago)
Cu

Energia Austral Project

Xstrata Copper Chile SA

Cu

CIA Minera Xstrata Lomas Bayas

Xstrata Copper Chile SA

Pachon Transportes Y Svcs LTDA
Cu
OCIP OCIP OCIP OCIP OCIP

El Pachon Project

Carbones de Cerrejon LLC

(Including associated
Cl
GEN

companies in Ireland and USA)

Xstrata Commodities Middle

East (Premises Only /
Cu
Colombia Dubai
PREM

Tenants Liability)
13
USD 1M USD 1M USD 1M USD 1M USD 1M USD 1M USD 2M AED 3.68M

Minera Antamina S.A.

(Teck Cominco)
Cu
GEN
C 20M
C 30M
C 75M

Xstrata Tintaya S.A.

Xstrata Chile Svcs
Corp. Limitada
Cu

Contractor: Betchel Corporation

CW PL
USD 50M

Fuerabamba Resettlement Project

Xstrata Tintaya S.A.

Xstrata Chile Svcios Corp Ltda
Cu

Contractor: Betchel Corporation

CWPL
USD 5M
USD 5M

Antapaccay Project
USD 50M

Xstrata Tintaya S.A.

Cu
Peru

Xstrata Tintaya S.A.

Cu
GEN OCIP

Xstrata Tintaya S.A.

Cu
TP

Xstrata Peru S.A.

Minera Antamina S.A.

Cu
USD 1MUSD 1MUSD 1M (3M

OCIP
AGG)
USD 1M

Xstrata Las Bambar S.A

and/or Xstrata Chile
Cu
50M
USD

Services Corp. Limitada

CW PL

Sagittarius Mines Inc

Cu
GEN
USD 10M

Sagittarius Mines Inc

Philippines

Cu
OCIP

Xstrata Frieda River Ltd

Cu

JV Partners
GEN

Mauritania Sphere
Inverstments Ltd & Others
Cl
TP
USD 2M PGK 5M USD 1M

PNG Mauritania

Xstrata Plc
Liability
Liability
USD 100M
Aviation & Marine

Aviation & Marine

 Implementation Process

Controlling
Broker
Office

Local
Broker Office
(where required)

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15

Optimisation Project Timeline

Project Start date Phase II – Phase IV –

Project Closing /
Discovery (4-6 Global Review
Review of Metrics
weeks) (4-6 weeks)
(10 weeks)

Global
Optimization
Timeline

Phase I – Logistics Phase III – Local Phase V –

(2-4 weeks) Review Implementation
(4-6 weeks) (ongoing)

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 Program Design

• Balance corporate objectives,

risk characteristics and
appetite, compliance, market
offerings insurer
relationships and available
solutions.
• Based on cross-border business
flows and processes.
• Address critical issues -
contractual obligations,
interdependence and contingent
exposures.

• Information on risk-related
events: Local
policy/exposure data, events,
• Comprehensive, including
changes in industry,
coverage as required, available
business environment,
and appropriate to address
regulatory, legislative and
exposure across multiple
other data.
lines/policies.

• Designed for efficiency in

program cost, execution and
administration.
• Options factor in contractual
obligations, regulatory
requirements, permissibility of
• Mirrors company’s admitted /non-admitted
underlying operating insurance, compulsory coverage,
structure. and tax.
• Tailored to minimize
coverage overlaps/ensure
program responsiveness and
compliance where possible.
• Clarity on response across
multiple policies.

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The Process to ‘Best practice’ – Structured market
engagement strategy
 Support and input by Specialty and
Broking Centres in each class of cover
 Preferred carriers based on Insurer
scorecard
 Lead / Primary
 Capacity / Excess
 Create Insurer Partners through
presentations
 Pre renewal strategy meetings with client
and lead Insurer
 Differentiating your client through data
quality
 Risk Profile
 Geographic Profile
 Risk Management process

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 Project Benefits

 Thorough understanding of costs associated with international insurance

programs
 Identification of program options to maximize cost savings

 Opportunities for creative solutions for partners, vendors, and/or suppliers

 Confirmation of counter-party risk from insurers
 Identification of areas of non-compliance

 Auditable, measurable tracking of results year over year

 Escalation of critical issues embedded in process

Opportunity to design and implement programs that align global purchases with
corporate objectives, maximize leverage, eliminate duplications and coverage
gaps. Most clients realise 20% reduction in global premium expenditure.

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 Client Examples
Client Situation
• Global food and beverage
company
• Client wanted to both
understand their total
insurance spend globally and
reduce their total cost of risk
for their global operations
• Many of the client’s lines of
business were purchased in a
decentralized manner by local
teams. Client wanted to
ensure all programs were
aligned with their corporate
risk management objectives
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Global Optimization
• Aon partnered across the
global network to conduct in-
country meetings with client
to explain risk management
philosophy and understand
local service needs
• Through the use of the
advanced GAMS system, Aon
was able to store, organize,
and provide the client with
access to all its local insurance
placed worldwide.
• Aon built on the collection of
the local policy placements to
conduct the TCOR diagnostic
and capture total insurance
spend
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Value Delivered
• Provided Client with complete
understanding of global
insurance purchases and service
levels.
• Reduced $2.4M in costs in year
1, with additional savings in
subsequent years leading to
$18.4M in cumulative savings in
first 4 years of engagement.
Savings generated by elimination
of duplicative insurance,
implementation of regional
programs and leveraging existing
insurer relationships
• Improved communication and
service levels by implementing a
new, consistent global process for
brokerage service levels
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 Client Examples

Client Situation Aon’s Approach Value Delivered

• A large heavy equipment • Based on analysis • Clear message to senior
manufacturer acquired or conducted by the Aon risk officers and local
established JV Operations network, the client operations on risk
throughout Asia, but identified several assumption.
lacked a centralized risk
finance program. insurance policies • Certainty on continuity of
providing similar limits applying globally
• Due to accelerated coverage with various
growth, many insurance • Certainty of contract
limits and retention terms and conditions
purchases remained in strategies.
place. Possibly causing purchased across product
confusion on intent of lines and geographies
• Aon performed a
coverage between comprehensive review of
programs policy terms to identify
• Concern that coverages gaps in coverage and
are not purchased to limits
consistent level

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Key Challenges to Overcome
 Process also normally needs to be
centrally driven by client at C suite level
to be effective
 Common for BU’s to ‘push back’ based
on:
– Own Interests / agendas
– Deductibles (tend to be higher in Global
programmes)
– Perception that local policies means
cheaper
– Cultural challenges
 Data Quality
– Decentralized client means inconsistent
data
– Local policies demand less data
– International markets expect world class
data
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 Recognising Client service needs
Geographically (AGCN/Retail)
– Does client have managed business streams
in more than one territory
– Are expectations to manage inwards /
Statutory policies only
 Managing Aon Network
– Service protocols
– Remuneration (RANS)
 Premium collection
– Cash before cover
– Central premium collection
– Captive credit rating/ceding
fees/commissions
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 Thank you

Any Questions?

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