U.S. RMs Heed China Wakeup Call, But Most Take Global Exposures In Stride

Brokers, too, believe the problems of working in China have been blown out of proportion but welcome the spotlight on recent problems, because it reinforces the need to think about exposures through a non-U.S. risk prism.

"China aside, there's nothing going on outside the United States from a risk perspective that is significantly negative or causing customers too much concern," said Doug Fay, president of Globex International Group, a worldwide broker network of 50 U.S.-based insurance brokers and 245 abroad operating in 129 countries, with offices located in Mountain Lakes, N.J., Fairfield, Conn., and London.

"The press and others are making more out of the Chinese situation than needs to be. The fact is that insurance has been placed in China for 100 years–and it is getting placed today. And in India, the same is true," said Mr. Fay.

"In reality, it's getting easier to put together insurance transactions in these and other countries because so much more business overall is being done in them," said Mr. Fay. "The concern over China now simply reinforces the message we've been trying to communicate to multinationals since we launched our network in 1993, which is that U.S.-based businesses should have the same risk management practices outside the United States that they have here."

Bruce Daccanti, principal and national practice director for insurance risk management advisory services at Ernst & Young in Chicago, said his clients are finding business opportunities in Asia–beyond China–and that corporate risk managers of these firms recognize the need to stay on top of a wide range of related exposures.

Internationally, everything from political risk mapping to business continuity planning, and from supply chain management to the assessment of catastrophe claims is on the table, he said. Coupled with that is the need to deal with greater transparency overall and concerns about compliance with Sarbanes-Oxley rules, he noted.

"If you work in a global marketplace, you need to know each of the countries you're in extraordinarily well, your business partners there, how your individual risks in each [country] may be changing–and, if they are, whether your risk tolerance is changing with them," said Mr. Daccanti.

Business opportunities are opening up in India and China, and there's also a lot of activity in the Philippines, he noted.

"We've got a client opening up business in Papua New Guinea," which is just north of Australia, "because it's a former British colony and [the client] feels comfortable there," he said.

"The nature of the business in some of these countries is changing, too," according to Mr. Daccanti. "We're seeing some clients looking to do claims intake [take first injury reports of claims] and adjudication in India, for instance."

Other clients, he said, "are looking at business continuity in India and thinking not just about technology and systems but also about people–how to get them out in case of a crisis."

Like many U.S.-based companies, regardless of size, Whirlpool's overseas exposures are significant and growing. The company said 30 percent of its sales are from Brazil alone, where it maintains three large manufacturing plants. It has other major plants in Mexico, Italy and Poland.

With exposures spanning 60 countries, Whirlpool is well into development of a global enterprise risk management program with senior management sign-off. So being able to detail local risks and determine how to manage them–both locally and within the context of its overall global risk program–is becoming increasingly important.

"We're in the middle of our process, consulting with our businesses internally–challenging them to help us identify their top risks and how to mitigate them," Mr. Morais said. "We're looking carefully at modeling and how to benchmark what we're doing. We understand that each country where we're doing business really has to be looked at and understood locally in terms of its risks and how to mitigate them."

Part of the problem, he said, is that so much of the modeling done for U.S.-based risks has little to do with the company's exposures in overseas operations.

"When we go to different countries and regions, we always have to keep in mind that we're dealing with exposures that aren't the same as they are in the United States," said Mr. Morais, who is Brazilian and managed Whirlpool's operations in Brazil before coming to the United States.

"Look at catastrophe exposures, for instance," he added. "In Brazil, we have no earthquakes and not the same level of wind exposures. So we have to ask ourselves, 'Are the catastrophe models available relevant to what we're doing in Brazil or elsewhere?'"

Unfortunately, despite the different risk levels, any events arising out of the United States or Europe will be reflected in insurance pricing, he said.

"Whether you're talking about earthquakes or other scenarios, premium, pricing, capacity all become volatile, and we're affected even without the problems in Brazil and elsewhere," he said.

At the same time, in Brazil and elsewhere, local circumstances–such as construction and fire standards–must be taken into account. "Whatever is happening abroad, it's very clear one size does not fit all," he said.

On a positive note, within three years Brazil's government agency–the Brazilian Institute of Reinsurance–will no longer have a monopoly on the underwriting of insurance and reinsurance markets, and foreign firms will have free rein to enter and compete. "So, here we'll clearly see the benefits of globalization," Mr. Morais said.

Beyond government monopolies and varying levels of risk around the globe, U.S. risk managers still must deal with the age-old problem of cultural differences across the globe–specifically, local insurance managers are used to doing things one way, while U.S. managers try to bring those managers and practices more into the companywide fold.

"When you're working with colleagues abroad, you have to make sure they understand your expectations and standards," said Celine Hannon, risk manager at Cupertino, Calif.-based Symantec Corp., a developer of application and system software products.

"That's true in Europe, the Middle East and elsewhere," she said, noting that Symantec, which currently operates in 40 countries, is working hard to increase sales in China and throughout Asia. The company also entered India two years ago through an acquisition.

"Culturally, in some countries, people aren't as transparent about their insurance coverages as they are here," Ms. Hannon said. "Here, it's very common to show a certificate of insurance if asked," she explained. Yet, in other countries, they may acknowledge that they have insurance but they won't share the details.

"And, of course, here we're used to a very fast pace and accustomed to fast turnaround," she said. "We count on our cell phones, instant messaging and e-mails to help us with that. Abroad, of course, that's not the case."

What's the key to successful international risk management? Rolling with the punches, Ms. Hannon suggested.

"You have to live with, and accept the fact that getting things done abroad takes time and requires paying a great deal of attention to nuances and cultural differences," Ms. Hannon said. "In the end, though, there's nothing you can't do abroad that you do here.

"Is there any situation where I haven't been able to get done what I needed to? Absolutely not," she said.

"We understand that each country where we're doing business really has to be looked at and understood locally in terms of its risks and how to mitigate them."

Dennis Morais, Risk Manager

Whirlpool

Art caption:

For map/globe with spotlight on China

For Alarm Clock w/China art