International Insurance Fundamentals
The Institutes' new online course opens windows to risk management outside the United States
By Bruce D. Hicks, CPCU, CLU
Insurance professionals, whatever their home country, generally have access to substantial amounts of education and training in all phases of the insurance businessóloss exposures, causes of loss, claims, premiums, taxes, etc. However, the training is all provided within the cultural framework of the country in which they are working. In the United States and other countries there are distinct customs and practices that might not apply elsewhere in the world.
In my own insurance training in the United States, I accepted information on many products related to liability insurance. I did so without questioning the legal framework or case precedents that shaped the coverages that the industry provides. With this in mind, I was quite pleased when I learned of The Institutes' online course called International Insurance Fundamentals (IIF). The Institutes developed the IIF with a great deal of assistance from the CPCU Society's International Insurance Interest Group (3IG).
I wanted to learn the nuts and bolts of addressing operations that have significant loss exposures located outside of the United States, so I enrolled in the course. In my case, it was not connected with having to handle clients with international loss exposures. Rather, it had everything to do with developing a better perspective on managing risks, which, increasingly, involve exposures that fall outside of America's borders. Also, the various audiences I write for (primarily insurance agents and consumers) are in the same position, in need of a broader coverage perspective.
For each section of the course, the core information is presented, with additional notes, definitions and expanded information in different and interesting formats that were quite rich in detail. The material is also "on point." There is no drifting off topic. Every element presented is relevant, directly and expertly supporting the subject being covered. The IIF course consists of the following sections, each followed by a quiz:
• Overview of International Insurance
• Identifying International Loss Exposures
• Regulatory Compliance
• Insurer and Broker Networks
• Reverse Flow Business
• International Insurance Solutions
• Selecting International Insurance Solutions
One fact that immediately became clear was that I overestimated my learning abilities. The overview quiz, yes the overview, was humbling and made it obvious that I needed to take more care when going through the material. The course includes a tutorial of The Institutes' exam process. After I finished the course, I then went through the tutorial. It was obvious that it would have been quite helpful to look at it first. I highly recommend this, especially if, like me the time I took the course, you are not familiar with The Institutes' online program.
The overview does an excellent job of discussing international insurance and the various elements that need to be considered when faced with having to identify and address non-U.S. loss exposures. Many of us have no significant experience with areas outside of the United States. Therefore, it is easy to overlook customs, cultural influences and laws. These can have as large an impact on meeting exposure mitigation goals, as do pure coverage (policy form) considerations.
For instance, some countries are quite averse to using litigation to solve disputes. We in the United States do recognize that personal interactions are important, but our acknowledgement pales in comparison to how other parts of the world highly value relationships. Another important area is how other countries have far different priorities in enforcing various laws. Privacy issues are considered much more important in other countries, and their laws (as well as legal consequences) reflect that higher concern. The way we do business in such countries must adhere to those different legal concerns.
The course includes practical examples as well as realistic, detailed cases. This facilitated my understanding of how to read how circumstances at a specified business changed and how those changes triggered new exposures. I also found it helpful that the information was in phases, introducing more complexity in both the information presented and the scope of non-U.S. loss exposures. A minor note is that France was mentioned a lot and maybe a future revision might mix in some other countries.
I had the most difficulty with the regulatory compliance section. Insurance-related laws, regardless of their country of origin, are complex. Every country or region that a business enters has its own legal considerations that intimately impact how business is transacted in those locations. There is no option other than becoming familiar with such laws in order to properly handle a given operation's insurance program needs. The course's Insurer and Broker Section laid out the importance of either acquiring the necessary knowledge or securing local experts to assist in meeting legal requirements.
Other parts of the course provide valuable information on handling business for foreign operations with U.S. loss exposures (reverse flow business) as well as discussing and actually making choices on the methods for handling expanding international loss exposures.
Arthur L. Flitner, CPCU, senior director of knowledge resources for The Institutes, says, "We are optimistic that International Insurance Fundamentals will become a popular solution for insurance professionals who don't work full-time in international insurance but need to learn the basics of this challenging and often intimidating field. For example, an agency that is finding that more and more of its customers are taking on international exposures might want all of its agents to get a better understanding of how those exposures can be insured. IIF might be just what this agency needs."
As mentioned earlier, 3IG provided important assistance in the development of IIF. We asked Michael Leinenbach, CPCU, AIS, one of the key individuals at 3IG providing assistance, for his perspective. Michael currently works as an underwriter on an international product management team for Zurich North America. He also is president of the New York chapter of the CPCU Society, a member of the Board of Directors of the Europe Chapter of the CPCU Society, and is on the governing committee of the International Insurance Interest Group (3IG) subsection of the CPCU Society.
RN: Why did you assist in creating the course?
Leinenbach: When it comes to technical knowledge of the international insurance market, there is a clear knowledge gap with brokers and agents who have traditionally focused on U.S.-based domestic portfolios, especially when working with their customers who are newly expanding outside the U.S. and do not have savvy risk management staff outside their U.S. headquarters. This course is the first step in filling that gap, and we recommend it for even the most experienced broker or insurance buyer who does not already consider international insurance programs to be in their comfort zone.
RN: How much are cultural considerations reflected in the materials?
Leinenbach: As a result of the intent to limit the scope of this particular module to a U.S. perspective, we did not spend a great deal of space discussing the cultural issues that an agency or insurance buyer in the international segment would come across on a daily basis. There was an effort to provide a broad overview of some of the most common cultural differences between, for example, a U.S.-based insurance professional and their non-U.S. counterparts. It was also a matter of keeping this online course at a level where the investment of time is reasonable since, to address the subject of cultural differences properly, we could have easily doubled or even tripled the overall course length.
RN: Is any particular area more challenging when dealing with international risks?
Leinenbach: In my experience, the most challenging aspect of dealing with international risks is the apparent tendency of individuals to maintain a home-based perspective rather than operating on a truly international basis. Even though I work with international insurance exposures, policies, and professionals from a very wide network of countries on a daily basis, I still find myself failing to ignore assumptions that result from spending my entire career here in the U.S. The fact is that such single-perspective mindsets will substantially impair the ability of a broker or underwriter to work in a global marketplace. I continuously work to avoid falling into that single-perspective trap. Even the most technically competent broker or insurance buyer can be ineffective when dealing with international insurance unless he or she can bring a global attitude to their work.
RN: Does handling international exposures affect how one understands and handles pure home-country exposures?
Leinenbach: Absolutely. Whether or not an insurance professional deals with cross-border exposures on a daily basis, having a geographically broader understanding of risk management principles cannot help but create a new, broader knowledge base of the products you are offering, the relationships you nurture, and ultimately the way you analyze and handle the risks which are part of the routine activities of any insurance industry professional.
RN: How well do businesses tend to estimate their vulnerability to insurable risks inherent in international operations?
Leinenbach: While larger global enterprises appropriately manage their global risks, I believe on the whole that U.S.-based businesses tend to underestimate their non-U.S. exposures while many non-U.S. enterprises tend to miscalculate the risks specific to the U.S. I suppose this means that overall there is a tendency to underestimate risks inherent in international operations except for the most savvy of risk management expertise which seems to reside in the larger global enterprises based in developed countries. Having said that, so long as a broker or agent recognizes his/her limitations and seeks out appropriate expertise, it is clearly possible to take a basic understanding of international insurance principles a long way.
RN: Do you think that more businesses might attempt expanding beyond their borders if they had a better understanding of the availability of coverage?
Leinenbach: Certainly availability of insurance coverage (or alternative risk management methods) is just one of the many factors that go into a business decision whether or not to undergo a geographic expansion of operations. At the same time, it seems logical that cognizance of the myriad of international insurance solutions available to address much of that risk, and how to avoid additional risk by compliantly structuring such solutions, would eliminate one of the major impediments to such economic expansion. Working with a broker who has at least the fundamental technical skills as are provided in the IIF course is one way to smooth the way when moving into a "foreign" insurance purchase for the first time.
RN: Are there any plans for intermediate, advanced or supplemental courses?
Leinenbach: The 3IG has no intention of resting on our laurelsóeither in developing education initiatives for the international segment of the insurance and risk management industry or finding other ways of helping agents, brokers, and underwriters to develop a truly global perspective. Our hope is that ongoing educational initiatives will follow in the tradition of the IIF course, but we continue to seek other ways to help our colleagues broaden their understanding of international issues inherent in our profession. It is important to note that the IIF course deals with international insurance fundamentals, but the 3IG membership has the expertise and experience to develop resources for a broader scope of risk management programs including captive fronting and services, complex CMP (Controlled Master Program) structuring, and reinsurance. We also can provide technical expertise on what goes on behind the scenes when implementing an international insurance program. It just would not be right for us to keep this passion for international insurance to ourselves!
RN: What should agents be wary of when approaching their clients' possible international loss exposures?
Leinenbach: In my experience, even relatively small enterprises are adept at identifying their international exposures. The problems arise when an insurance agent, even one who has the best intentions, provides guidance that may not be based on an appropriate level of expertise with international insurance. One such scenario might be advising an insured that has only a sales office in Mexico that their U.S. property/liability package policy provides cover for losses occurring in Mexico because the coverage territory in the policy is "global." It is only when a loss occurs in Mexico that they realize a U.S.-issued policy is essentially prohibited by Mexican insurance regulation to provide cover for Mexico exposures. So even though the defined coverage territory is appropriately broad and the U.S. policy may even be able to provide some coverage in the U.S. if the suit is accepted by a U.S. court, that Mexican legal entity and the Mexico employees are in essence uninsured from a local Mexican perspective. As any broker or agent will tell you, finding that out after a loss puts everyone involved in a very difficult situation.
The CPCU Society's international ambassador
The CPCU Society, which worked in conjunction with The Institutes to develop the IIF course, recently appointed Shahid Nadeem, CPCU, its first international ambassador. Nadeem, the underwriting manager for Gulf Cooperation Insurance Company (GCIC), is from Pakistan but is currently working in Saudi Arabia. We asked him about the insurance market in Saudi Arabia, and for his views on insurance education.
RN: How does insurance regulation in Saudi Arabia compare with the U.S., where regulation is primarily under each state government?
Nadeem: There is a striking difference. In the U.S., insurance regulation is tremendously mature and deep-rooted. Despite being primarily under state regulation, it enjoys all necessary features of federally administered regulation. In Saudi Arabia the insurance market is quite limited, and insurance regulation is in its infancy, effectively just introduced in 2010. Politically and administratively, there is no question that the two regulatory systems are vastly different.
RN: Are lines of business separated into property/casualty and life/health?
Nadeem: Yes, however, most of the property/casualty insurance companies sell health insurance too. Life insurance on the other hand is yet to establish its roots in the Arab indigenous society.
RN: What is the profile of insurer ownership?
Nadeem: It is 40% public ownership and 60% private ownership.
RN: Is pursuing a CPCU designation more difficult for international students? Are classes offered online? Self-study?
Nadeem: For students pursuing a CPCU designation outside of the U.S., it is surely more difficult due to lack of guidance, language, limited resources, and insubstantial incentives from employers. According to my own experience, self-study is the only practical, affordable way for international students.
RN: What lines of business are most prominent in Saudi Arabia?
Nadeem: The most prominent lines of business here are commercial property, commercial casualty, personal auto and commercial auto. It is quite uncommon for people to seek to insure personal property.
RN: What is the most common sales/distribution method?
Nadeem: Traditionally the most common sales/distribution method is through an in-house sales team. However, in our new regulatory environment, external brokers have captured a significant portion of the most desired insurable business. Online selling, for all intents, has yet to be introduced in this market.
RN: What perils are difficult to insure in Saudi Arabia?
Nadeem: Historically, the region has been immune from catastrophic natural disasters, so at least all significant natural perils are insured comfortably. However, some perils of political nature such as terrorism, strikes, riots or civil commotion beyond certain limits have become slightly difficult to insure.
RN: Can you tell us about your insurance career, such as your introduction to insurance, past work, current employer and duties?
Nadeem: After completing my graduation, I moved to Saudi Arabia, just to†evaluate some career options, without any clear agenda. A friend introduced me to Gulf Cooperation Insurance Company and I began work for them as a clerical assistant.
My introduction to the insurance industry was purely an accident, but my introduction to Professional CPCU Qualification was a long process of starts and stops. Mr. Ishaque Khan, former managing director of GCIC, founder of so many institutions in the subcontinent†and one of the oldest members of CPCU Society, inspired me to do something really worthwhile.
During my first five years in GCIC, I resisted his calls to pursue professional qualification. I had deep reservations about doing something that was almost impossible for†me to achieve. After a long inner struggle, I understood the importance of having a professional designation. Everything became orderly as I embraced a strict discipline toward my studies. Nothing was more important for me as my whole perspective concerning a designation and the arc of my career changed.
RN: What other activities and positions have you been involved with in the CPCU Society?
Nadeem: Many times I, along with a couple of other CPCUs (mostly from the subcontinent), tried to launch a formal CPCU Chapter in the Middle East. Unfortunately, in our canvassing of the MENA (Middle East and North Africa) region we never found enough CPCUs to make one viable. Further, we have noticed that there is not a single indigenous CPCU in Saudi Arabia. So while living in a region where a genuine professional qualification is a rarity, we are committed to prove ourselves as role models. We are ready to guide and promote the CPCU designation whenever opportunities arise.
RN: Are there any cultural challenges for the growth of insurance in Saudi Arabia?
Nadeem: Oh yes! Cultural challenges are indeed deep-rooted. A significant segment of society seems to have certain inhibitions against insurance, rooted in a particular religious temperament. Gradually, all such inhibitions are weakening and will perish, sooner or later.
"We recommend the course for even the most experienced broker or insurance buyer who does not already consider international insurance programs to be in their comfort zone."
—Michael Leinenbach, CPCU, AIS
Board member, Europe Chapter of the CPCU Society