Looking for growth? Turn your sights to the developing world. Many of your clients already have, no matter their sizes.
No longer the exclusive realm of GM, Exxon or McDonald’s, the foreign market is beckoning businesses of all sizes—from accountants and lawyers to small manufacturers, non-profits and other businesses—in other words, the core clientele of independent agents and brokers.
New government incentives to spur global growth of small to midsized U.S.-based businesses, coupled with the international reach of the Internet, means even the mom-and-pop candy store down the street could go global—by buying or selling their wares overseas, or at the very least, importing raw material or ingredients in bulk from another country.
And independent agents are perfectly positioned to get into the international market, using their own clients as a springboard, as long as they can shift their thinking from the "menu card of products and services" mindset to one centering on individual client needs.
"There is a market for anything we could conceive of as a risk; everything can be insured. But many agents neglect clear opportunities in their existing books of business to tap into this market, whether it’s from a lack of knowledge of where to place coverage or the traditional product portfolio model," said Dante A. Disparte, director of partner solutions for Clements International. "Meanwhile, from the customer’s vantage point, they are not getting the comprehensive service they need and are forced to develop multiple broker relationships to meet their international needs. This gap puts the rest of that agent’s business at risk."
Even if you’re foreign to the concept of multinational business, there are ways for independent agents to access this booming market, whether it’s through carriers, trade associations, broker networks or even with help from local or federal government.
"Independent agents’ interest in this segment is important to us because multinational growth is an area of opportunity, and it’s not just for the big boys," said Kathleen Ellis, senior vice president, worldwide manager at Chubb Multinational Solutions. "Clients of all sizes are going international—not just manufacturing, distribution and exporters of hard goods, but of Internet and professional services, accountants and lawyers, all businesses that are huge buyers of international policies because of global expansion."
A booming market
There’s no question that any U.S. business looking for serious growth today must look beyond our national borders. According to the most recent Global Economy Tracker study from Associated Press, a quarterly analysis of the 22 countries that account for more than 80 percent of the world’s economic output, the global recession has barely made a dent in the growth of China, India and other major developing countries. Over the past 30 years, these developing nations’ share of total global economic output has gone from just 18 percent in 1980 to 26 percent in 2010, according to the World Bank. The fastest-growing economies are China, India and Indonesia, with the slowest-growing economies in Old World countries like Spain, Italy and Great Britain (the U.S. ranks 12th among the 20 largest economies, according to the AP study).
Economists tout the so-called BRIC countries—Brazil, Russia, India and China—as a source of foreign expansion opportunity because of comparatively low labor costs and expanding economies.
And while the boom in China and India is no surprise, don’t underestimate Europe’s growth potential, either. Relatively healthy economies in countries including Germany, for example, are still attracting U.S. businesses that are in expansion mode, according to Jones Lang LaSalle’s International Desk Outlook, released earlier this year. The study predicts that the markets in which the most U.S. corporate growth will occur in 2011 are India, China, Germany and Brazil.
What type of businesses can succeed there? Just about any, from high-tech in India to Louis Vuitton in Shanghai.
"A number of U.S. companies have R&D departments in India because of the educational level of their work force," said John Rodwell, vice president of international development for Assurex Global, the world’s largest network of independent insurance agents and brokers. "India is also spending money on infrastructure construction, energy production, power generation, roads, ports and airports. Much of India’s food is produced on small farms, and 40 percent spoils before it’s consumed because of the lack of infrastructure—small farms, old road, and no cold storage. This offers a tremendous opportunity for U.S. companies," he said.
"Once a solid infrastructure is in place, disposable income will increase, opening the door for American business to participate," Rodwell said. "It’s a good opportunity for midsized companies, such as machine parts suppliers, pharmaceutical —just about everything. Even Wal-Mart is trying to lobby the Indian government to invest in India because there is a complete restriction on multibrand retailers entering the country."
Middle and upper classes are on the rise in developing countries, and with that comes increased affluence and the desire and demand for high-end products. Interestingly, luxury Western products are highly desirable to this emerging group, Ellis said. "For example, throughout China, specifically Shanghai, there are a number of Ferrari dealers with booming sales volumes. But surprisingly, did you know in Sao Paolo, Brazil, there is the world’s largest?" she said. "Sao Paolo boasts a number of luxury retail stores, and is the only city in the world to have four Tiffany stores, three Bulgari stores, as well as the most profitable Louis Vuitton store."
The desire to have Western goods and standard of living is huge. "Starbucks in Shanghai is a huge magnet for the up and coming," Ellis said. "Just to ‘see and be seen’ there gives one status." Additionally, tech products are in demand as is solar energy and energy-efficient equipment or products for local use, built or sold there under different labels, she said. "In these developing countries, the middle market wants to buy, and being a manufacturer that has product or service that would sell there is the key, especially in China."
But the potential doesn’t end in the BRIC countries. "China and India may be seen as a bit sexy, exciting and dynamic because of the large populations, but it can be challenging to do business there because of cultural and language differences," Ellis said.
Numerous and often changing regulations within these countries make it hard to get a business off the ground. Having a strong network of contacts that can help you work through these obstacles is critical. Other countries in the early emerging stages are Vietnam, Indonesia, Malaysia, which are starting to be attractive to foreign direct investment because the costs of manufacturing and labor can be lower than China or India.
Mexico, Saudi Arabia, Argentina, Vietnam, the Philippines and South Korea all are on the short list for growth. A huge opportunity exists in sub-Saharan Africa, a highly fragmented market of more than 50 countries, rich in natural resources, with a very young population, Disparte said. "There is a historical stigma that this region is a no-man’s-land, but firms are now looking to this continent for growth," he said. "A recent McKinzie report found that after Southeast Asia, the African marketplace is the most attractive place to invest."
And if developing nations seem intimidating, many businesses might consider grabbing the relatively low-hanging fruit in more familiar territory like western or eastern Europe. "It may be easier to do business in Germany, the Czech Republic or Hungary, Poland, Ireland, or even the UK than it is to get into a developing country," Ellis said. "Costs may be higher in compensation, taxes and energy, but depending on what business you are in, those countries should not be overlooked. It may make more sense to go these familiar countries first. Cultural and language differences may be a bit quicker to master. Sometimes a foray into developed countries helps a company exercise global skills that will set the stage for success in a less developed one."
Even the mature markets of Japan, Australia and New Zealand will offer significant opportunity for growth as they rebuilt from last and this year’s tsunami, earthquake and catastrophic flooding, said Bill Skapof, head of international commercial markets at Zurich North America Commercial. "The truth is, it has never been easier for companies of all sizes to take advantage of growth opportunities in foreign markets," he said.
Go along for the ride
So how can independent agents go along for the ride? There are several ways, particularly through broker networks, said Coletta Kemper, vice president of industry affairs for the Council of Insurance Agents and Brokers.
The Council, whose core membership is middle-market agents and brokers, started building its global member network about 15 years ago. Since then, the Council has added about 40 non-U.S. members all over the world, or about 16 percent of its overall membership—brokers its U.S. members can access when working with customers overseas. This enables middle-market agents and brokers to compete with the big brokers for international business, Kemper said.
Other well-known broker networks include BrokersLink, Assurex and Worldwide Broker Network, which enable members to partner with other agents around the world to provide service in countries without taking the risks and placing in the local market (See sidebar, "Conventional Risks in Unconventional Places"). These are servicing brokers under the direction of the U.S. agent.
Agents can often benefit from being in more than one network, because not every firm in a single network may be able to handle the risk that must be placed, Kemper said. "Agents can often service the business through their own local offices but also have their own networks and may have independent brokers around the world to service clients. This is essential, fundamental to doing business globally."
"The big advantage of working with partners in our network is that the people you’re dealing with overseas have been vetted," Rodwell said. Assurex Global has 107 broker members with representation in over 80 countries. "We send teams into countries to interview agents and brokers before making our final selection for membership."
Building a strong relationship with a foreign business partner is essential to the process, said Jim Kapnick, president of Kapnick Insurance Group, an Assurex member. "To effectively handle a master global program, one needs to have a relationship with the local insurance providers for expert advice in each country and have the ability to effectively communicate back to the controlling broker," he said. "As an Assurex member, we have the opportunity to meet and build relationships with our partners across the globe throughout the year. This allows us to build deep personal relationships that are incredibly important to properly handle the servicing needs of a multinational client."
Another primary source for assistance is with your existing insurers. Chubb, Zurich and other carriers with a long-standing global presence are targeting midmarket growth abroad, and independent agents are key to their strategy.
"Many global insurers have long, successful histories in many foreign and emerging markets," Skapof said. "Many begin with representative offices or by partnering with an existing indigenous company. Many countries require participation by locals and most insurers find that hiring, training and promoting locals helps them to transition and align successfully. This knowledge can be important to agents, brokers and insureds who can take advantage of this experience by partnering with these companies." With a local presence in more than 180 jurisdictions around the globe, and access to more than 1,000 risk engineers and 8,000 claims handling professionals, Zurich is a good carrier partner for agents whose customers have significant global risk.
"Any independent agent can handle international customers," Ellis said. "We encourage our agents to build their confidence and sell their ability to handle global accounts, but they don’t have to be global themselves."
To assist its agents in becoming savvy in the multinational market, Chubb hosts an international producer school each year for agents who expect to have a book of business of international customers. About 35 to 40 Chubb agents attend the day and a half training each year. The program covers property-casualty and specialty coverage, claims, serving the business and country-specific information.
State and federal government entities also are a potentially valuable resource when going global. "Many trade bodies have set up shop to facilitate international trade, and these serve as a valuable resource for agents to advise their customers," Rodwell said. "These include municipal and state chambers of commerce. For instance, Cincinnati has a well established European-American Chambers of Commerce, and Columbus is establishing a chapter, to serve the needs of European corporations doing business in Ohio, and vice versa.
On the federal level, the U.S. Small Business Administration (www.sba.gov) is a useful resource for any type of business targeting global growth, Kemper said.
One of the main considerations in placing international coverage is market access, Disparte said. Access to markets like the Lloyds of London syndicates is important since this is the most specialized of the existing insurance players. However, it’s difficult for individuals to approach the market without some heft behind them. Companies like Clements have access to London underwriters and can adapt coverage to a specific situation. Unlike the traditional wholesaler arrangement, which can offer agents existing products that vary only by price, Clements Partner Solutions examines broad customer segments, determines risks and approaches Lloyds collectively to get underwriting. One example is a new life insurance product designed for employees of the United Nations, many of whom are in low-income countries and households. Through Lloyds, Clements was able to design a range of products for high-income earners as well as previously uninsurable classes. The United Nations Federal Credit Union (UNFCU) now offers full-fledged life coverage around the world to people who at one time were considered uninsurable.
Another issue is the divergence of regulations between countries. Regulatory compliance is critically important as insurance regulators around the world are increasingly focusing on insureds, brokers and insurers to ensure they adhere to local tax, licensing insurance/reinsurance and fair and equitable premium allocation rules and regulations, Skapof said. "Failure to comply can bring harsh penalties including fines and other punitive measures, up to and including suspension of business licenses," he said. "For agents, brokers and insurers held to an even higher level of compliance, penalties can include the loss of your insurance license in the country and criminal penalties."
Global business has its challenges and there is no one organization or government agency that provides information to unravel all the pieces, but global business is not a mystery either, Ellis said. "Doing business globally is here to stay. Large or small, agents and customers will continue to seek solutions for their businesses. It is critical that they have an agent to partner with and a multinational carrier that can make human and business connections around the world so they can comfortably expand. "
On the regulatory front, the climate is dynamic and ever changing. Anti-money laundering laws in many countries such as Japan and Mexico and premium tax issues within the European Union continue to percolate. Regulations can and do change overnight, Ellis warned, so it’s important for the carrier to have "good lawyers and people on the ground" to help clients know the current conditions.
"Chubb, Chartis and others have teams of people who are very good at helping agents put together multinational programs that are compliant," Rodwell said. "You could be breaking the laws of some countries if you rely on U.S. policies to cover assets located outside of the country. For example, if a U.S. company acquires a French company and subsequently endorses a U.S. policy to insure the French business, that will be a violation of French law since French regulators require French assets to be insured by a policy issued in France. These types of rules apply in many countries around the world."
To help track laws and regulations, Assurex subscribes to Axco Insurance Information Services, which provides information on more than 180 countries’ insurance requirements and regulations. "We recommend that Axco be the first place our agents look to find out about the law, then contact an Assurex partner in the country of interest to make sure they’re understanding the laws correctly," Rodwell said.
Kemper pointed out that although 97 percent of U.S. exports are conducted by small and medium-sized businesses, only 1 percent of these businesses export to more than one foreign country. And although there is potential to expand their horizons, many businesses may be reluctant to do so in fear of conflicting laws and regulations, she said. And there are many challenges: "Most international large commercial business is placed in the international marketplace, not in the country of coverage. But sometimes the capacity of local insurers in the admitted market is limited, so one corporation can use up all of their capacity on just one policy," Kemper said. Agents must be sophisticated players to do this.
Taxation is an issue because rates and requirements differ vastly from country to country, Kemper said. "Joint ventures and partnerships with brokers in that country is what most agents are doing when they need to service business for a client," she said.
In spite of the pitfalls, the multinational market isn’t going away—and agents who service their customers must be able to deliver the goods. "Agents must part ways with the things that have made them successful domestically," Disparte said. "Instead of product menus, have open-ended questions and conversations. The power of listening when engaging with customers with international exposures can go far. When customers sense an opportunity abroad, they will have questions about the risks they face there. If the independent agent doesn’t adapt to addressing the risk, they will become obsolete to customers and premium expenditure will go elsewhere."