Insurance program structures

The first type of insurance management is where there is no central organisation for the procurement of the insurance coverages. In other words all legal entities are responsible for the purchase of the insurance coverage they would like to have. Each entity needs to decide on limits that are sufficient for the coverage of their specific risks.

In the graphic you will see an example of the limit of indemnity amounts which have been purchased by each country/legal entity.

The advantages of decentralized insurance management are:

• The management of local entities experience autonomy from the parent organisation.
• The coverage can be tailored to the local situations and insurance customs.

• There is no certainty about the protection of the group assets.​

The second type of insurance management is there is a central organisation which is responsible for the procurement of the insurance coverages at a group level. However, in this case the coverage at group level should be seen as an umbrella over the coverages that are separately purchased by the individual legal entities. 

In the graphic you will see that the group purchases a program with an limit of indemnity of EUR 5mln which functions as an umbrella over the EUR 1mln coverage which needs to be purchased by the  respective legal entities/countries.

In this specific case the countries have been requested to take care of the first EUR 1mln where the group will take care of the additional limits of indemnity. To make sure that the program is as efficient as possible the required local limit as well as the limit of the umbrella should be communicated clearly in order to prevent misalignment (local limits which are either to high or to low).

The advantages of centralized non-admitted programs are:

• The management of local entities experience autonomy from the parent organisation.
• The coverage can be tailored to the local situations and insurance customs.
• There is certainty about the level of protection of the group assets.
  

The disadvantages of centralized non-admitted programs are:

• There might be gaps and overlaps between the local coverage and the group coverage.
  
• Premium level of the umbrella coverage higher due to uncertainty of coverage of underlying policies (situation might be different from year to year)

The third and last type of insurance management is where there is a fully centralised (insurance) organisation for the procurement of the insurance coverages at group level.

In this case the limit of indemnity and provided coverage on both a group as well as local level are decided centrally.

The advantages of centralized global insurance programs are:

• There is certainty about the level of protection of the group assets.
• There is a uniformity in the way risks are covered throughout the group.
• There are no gaps and overlaps in the local coverage and the group coverage.
• Optimisation of TCOR (by means of utilizing bulk-buying power).

The disadvantages of centralized global insurance programs are:

• The management of local entities does not experience autonomy from the parent organisation.
• The communication level from the parent company to the local companies is more labour-intensive.