Author: jonathanhoeh

HÖH: India will be the most populous country in the world. India has, arguably, greater linguistic diversity than any other large country. The precise number of languages spoken in India is probably over 1,000, but it is often hard to define when one language begins and another ends. How does this affect business? How do you cope with this varieties?

THAKKER: Well, the number of spoken languages, regional, folk etc. is said to be over 3000. However, we have Hindi as a national language which is taught in almost every school. Also, most schools in major cities and towns are English medium schools where Hindi is taught as a language, but overall teaching is in English. Most legal documents including insurance policies are printed in English. Language has never been a barrier in growth. In fact, India has become a huge IT hub because of a very large, young English-speaking population.

HÖH: What are the biggest risks that foreign companies operating in India need to be aware of?

THAKKER: So far, the major risk has been frequent policy changes in various sectors but that seems to have changed. The government seems to have adopted long term goals and have set up policies accordingly. Sometimes, infrastructure projects get affected when there is a difference opinion between state and central government.

HÖH: How do India risks differ from those in other countries?

THAKKER: Infrastructure is not at the same level as in Europe, the US or even China. That can be a “challenge” or a risk at some point. I would say the other “challenge,” which is not so much a risk, is that we have different states with very different cultures, different languages, and different consumer behaviour. That can be an extraordinary situation for companies that want to be present throughout India.

HÖH: What regulatory challenges are companies facing? What types of insurance are mandatory?

THAKKER: The current government is very industry friendly. A lot of new Economic reforms have been introduced and the latest budget presented on February 1st has been very well received. Non admitted cover is prohibited but some multi-national companies still rely on the master policy for D&O cover with no local policy. This can be a big issue and it is mandatory for stock listed companies to have a local D&O coverage in place. Other mandatory coverages include MTPL and a public liability act policy when storing or manufacturing certain, specified hazardous materials. The “cash before cover” law presents a challenge when it comes to global programmes as we often receive invoices / quotes very late and sometimes after renewal.

HÖH: How do you cope with these regulatory issues?

THAKKER: It is a standard practice for us to keep our partners updated with developments in India, be it regulatory or market practices. To cope with cash before cover issues, we keep regular contact with the local fronting company and global brokers well before renewals. Wherever possible (if accepted by the local fronting company) we advise the client to place deposit money, if invoices / quotes have not been received.

HÖH: Can international insurance programmes be implemented? Which special features must be considered?

THAKKER: Programmes can be implemented, all lines. Recent development however is that on PDBI local tariff rates will apply even on programme policies´. One must always remember that India has cash before cover law and that Indian clients are used to low deductibles. In general, local deductibles are much lower than programme policies for almost all lines. We closely interact with controlling brokers particularly on scope of cover. Generally, our observation is that when submitting terms to master insurers, local fronting companies often submit narrower terms.

HÖH: Please describe Peraj incoming business servicing capabilities?

THAKKER: Peraj has been in international business since 1978. We take extreme care to have a diplomatic and delicate approach with clients. We endeavour to spend time and efforts on confidence building with clients. More so when programme policies are to be implemented when local terms appear better. We try to engage clients in conversation, answer all their questions and allay all their fears and apprehensions. Generally, when the appointment is from HQ, the local client tends to get apprehensive. We give them comfort and confidence that we are by their side, to take care of all their issues. The entire team speaks fluent English in addition to local regional languages.

HÖH: Can you tell us about your most complicated case when dealing with international clients?

THAKKER: A large cement producer was setting up a very big and complicated project in this region. The quarry was being set up in the North East border of India and the cement plant was to be erected in Bangladesh, the two to be connected with a closed conveyor belt, 17 km long (longest in the world) crossing the international border and a river. North East was and is still a troubled state with Naxalite activities (insurgency group). The Bangladesh market was too small to be able to write a risk of the size the client was proposing (in fact the entire capacity was just about 5% of the requirement). Owing to challenges mentioned above, international reinsurers were unwilling to write lead terms and we had to arrange most of the capacity from India. The leading broker assigned us the task of placing the risk locally. The year was 1996 and we managed to do what was necessary. This client is still with Peraj although globally brokers have kept changing.

Tushar Thakker
Tushar Thakker is the owner of Peraj insurance broker and leads the broker as CEO and Director for more than 30 years. He is well known in the global risk management community and has strong relations to brokers around the world.

About Peraj
Peraj is the oldest intermediary services company in India for direct/retail broker related services. Peraj is a pioneer with 65 years’ experience in the industry. A very high client retention rate reflects the quality of services and the ability to service all lines of insurance. Peraj provides services not just across India but also Nepal and Bangladesh.

HÖH: What role does foreign direct investment play in the Japanese economy?

WALLINGTON: By way of background, Japan has had less foreign investment when compared with most of the other major developed nations. This is mainly because for a long time, they have sought to nurture and protect their own companies until they were strong enough to trade and compete in the global markets. In some cases, foreign companies have entered the market and then withdrawn once they found the barriers too difficult to manage. For example, eBay Inc who entered the Japanese market in 1999 but had to withdraw in 2002 due to local competition. Fortunately, the situation has recently changed and foreign investment in certain industries is now rapidly increasing.

Japan is potentially a very attractive market for many overseas companies because it has a very large and sophisticated customer base of over 120 million and represents approximately 10% of the world’s economy. However, it is a tough market to break into because Japanese customers can be very demanding, with different tastes and needs requiring overseas companies to redesign or redevelop their products. Examples of this in the past have included cars, mobile phones and toothbrushes.

HÖH: What are the biggest risks that foreign companies operating in Japan need to be aware of?

WALLINGTON: The size of the market requires substantial investment and there is usually fierce competition from long established competitors (depending on the products and industry). A detailed market research and strategy is an absolute necessity to succeed in this country.

In addition, Japan has always been a very bureaucratic country with lots of regulations, permissions, certifications, procedures, offices and authorities requiring approval procedures. These don’t normally exist to such an extent in most developed countries and it requires a lot of patience to navigate through these.

On the physical risk side, Japan is reported to have around 5,000 minor earthquakes recorded per year (more than half measure between 3.0 and 3.9) and around 160 earthquakes with a magnitude of 5 or higher. Having said that, the building construction regulations are such that most of the infrastructure can withstand all but very strong earthquakes. Other natural perils such as flood, typhoons and windstorms are becoming more regular and stronger as climate changes make their presence felt.

HÖH: What are the main facts of the insurance market in Japan? How do the key indicators compare to European markets like the German insurance market?

WALLINGTON: The Gross Written Premiums of 114,818 million USD in Japan are rather low compared to 126,005 million USD in Germany. This clearly indicates that the Japanese insurance buyers do not purchase as much insurance as these other countries, in particular business interruption insurance.

The major lines of insurance include Motor (40.2%), Liability (19.6%), Property/Commercial (18.4%), Marine (4.7%) and Other (17.1%).

Additionally, the market share of the top big 3 Japanese insurers represents 86% of the Japanese premium, indicate a strong concentration and power base in these 3 insurers.

The largest Claims in FY 2018-2019 were natural disasters including eight typhoons totalling 29.3 billion USD/ snowfall 3 billion USD / heavy rain 1.8 billion USD although this is somewhat less than major earthquakes such as the Tohoku earthquake in 2011 which resulted in 15,782 killed/4,086 still missing/128,530 dwellings destroyed & losses totalled 236 billion USD.

HÖH: Can international insurance programmes be implemented? Which special features must be considered?

WALLINGTON: There are literally thousands of International Programmes in place in Japan through fronting policies for foreign companies operating in Japan. As non-admitted insurances in Japan are illegal (apart from marine, aviation, reinsurance and overseas travel), companies must have their global insurers/brokers arrange for fronting policies to be issued by either their licensed subsidiary in Japan and if they have none, then by a correspondent licensed insurer/broker.

Additionally, when purchasing insurance in Japan it should be noted that the Insurance Policy Wordings need to be first approved by Japanese FSA. In addition, the collection of insurance premiums is critical as Japan is a “cash before cover” jurisdiction and the fronting policies are only effective once the premium is paid to the insurance agency such as Cornes. Insurance premiums need to be paid by a policyholder who resides in Japan in Japanese yen and not from overseas parent companies.

Policy wordings are available in Japanese or English depending on the type of insurance and the insurer. The compliance laws in Japan require insurance agents to explain each type of insurance and get the local subsidiary’s ‘sign off’ that they understand and agree to the renewal terms even when the terms are agreed by their head office.

HÖH: What are the first steps for foreign clients regarding insurance?

WALLINGTON: Once, we at Cornes, are advised of a new client and the fronting policy(ies), we introduce ourselves to the local subsidiary’s contact and the fronting insurer(s). We then re-confirm the terms, run through the insurances with the local client representative (as required under Japanese law), raise an invoice and issue the application forms (one required for each policy every year). Japan is a “cash before cover” jurisdiction so cover commences only once we, acting as the insurer’s agent, receive the premium. Every application form requires the client’s registered “hanko” (stamp) and insurers will only accept the originals of these forms before issuing the policy documents although the pandemic and WHF restrictions has meant that some insurers accept copies for the time being.

Cornes Insurance Agency prides itself on its professionalism and we have established a comprehensive servicing and follow-up system in place to ensure we give every client a friendly and professional service. Our incoming business service capabilities are our lifeblood and we insist that all account managers have a minimum level of English. In addition, we currently have two persons who can also speak and write Spanish and one who can write and speak German.

Our insurance license enables us to not only manage the client’s general and financial risk insurances but also assist them with their Employee Benefit insurance needs – two of our account managers used to work for Japanese Life Insurance companies. All account managers are required to pass the Japanese Insurance Agency exams before being allowed manage clients. In terms of our international business experience, we have an average of 10 years per account manager.

As in some other post-Soviet economies, insurance spending in % of GDP remains quite low, also impacted by constraints in macro-economic conditions, restricted bank lending, and currency devaluation. This results in market premium primarily depending on the compulsory classes of property and MTPL, supplemented by voluntary premiums across all classes related to the major corporate businesses in the oil, gas, energy, real estate and construction sectors.

However, usually local market capacity is not enough to cover large corporate risks of foreign direct investors. Additionally, the wordings do not match the standard of Western European countries and regulatory complications, such as the required filing of forms with authorities, make local market placements difficult or impossible. Therefore, brokers advising multinationals with business interests in Eurasia try to organize global coverage.

According to statistics, Mexico employs 61% of the workforce in the service sector, which accounts for 60.1% of GDP. The technology-, information- and software development-sector in particular is growing due to the good quality of the workforce and low operating costs. But medical services and tourism are also growing faster than in Western countries thanks to low service-costs. In 2018, Mexico recorded a record number of visitors, estimated at 41.4 million according to the Ministry of Tourism.

Although, according to the Mexican Association of Insurance Institutions (AMIS), the insurance sector recorded a real increase of 5.37% in the first quarter of the year compared to the same period last year, the declines were significant in some sub-sectors such as automobile and accident insurance. In addition, a general decline in business of 5.4% is expected at the end of this year or in the beginning of 2021. Currently all companies in the insurance-sector are suffering from the low demand and also affected by reorientations in their business-activities.

HÖH: Can you tell us some of the key facts about the Mexican insurance market?

HOWDEN MEXICO: The insurance culture in Mexico is weak, so the growth potential is very high. Per capita-insurance-consumption in Mexico is low, compared to other Latin American countries and lags behind Brazil, Argentina, Chile, Colombia – and even Peru. It is important to make insurance accessible to the people by developing technological business strategies. A large part of the population does not even know where to buy insurance.

The insurance with the highest penetration is car-insurance, with 30% of the total fleet of vehicles in Mexico, mainly because a significant percentage of cars are bought on credit and insurance is therefore required. Immediately after this comes life insurance, with a penetration of 10%.

HÖH: What are the biggest risks for foreign companies?

HOWDEN MEXICO: The risk for foreign companies is primarily the legal uncertainty and – due to the current crisis – also the economic uncertainty of the country. We also have a considerable risk of natural disasters such as hydro meteorological risks and earthquake risks. Another risk is the high theft of vehicles and goods. And the health-risk should not be underestimated: too high a proportion of the population suffers from obesity.
In 2017, Mexico ranked fifth in the world in terms of losses due to cyber-attacks, with financial institutions accounting for 20% of these losses. Recently, some banks were again the victims of a cyber-attack that caused almost 300 million pesos of damage (editor’s note: approx. 11.5 million EUR). Therefore, one of our greatest concerns is operational-security and that the information of companies offering services or products online is protected.

HÖH: Can international insurance-programs be implemented? And how does Howden Mexico provide customer service, how do you coordinate with the controlling brokers?

HOWDEN MEXICO: Insurance-programs can be implemented for companies that have are a representative office, partner or a branch of a firm headquartered in other countries. In particular, the requirements for quality, service and KPI standards must be taken into account. This requires a structure with a solid, dedicated and experienced support team for large and/or international business as well as representative offices in the countries of the respective regions. Currently, we have established an international business area within Grupo Ordás Howden that largely meets these criteria. Customer service is provided through the signing of a service-agreement, which is reviewed with the customer at least once a month. The coordination through the controlling broker is coordinated through written agreements, emails, telephone and video conferencing.

HÖH: How many years of experience has your team in international customer service?

HOWDEN MEXICO: We created the capacity for the international insurance business two years ago. The team consists of two people, Vice President Arlen Cooper and a senior executive, Perla Hurtado. Both speak English and have years of experience in international business. Arlen Cooper has been in the insurance business for 15 years and Perla Hurtado for ten years.

HÖH: What about the strong automotive sector in Mexico? Do you have proven capacities for this sector, and what specifics have be taken into consideration here?

HOWDEN MEXICO: Grupo Ordás Howden has a large team in the automotive sector. We are leaders in the insurance market here. This year, however, it will be a major challenge for Mexico, which relies heavily on the automotive sector, to recover and reach pre COVID-19 levels.

HÖH: What regulatory challenges are Mexican companies facing? What types of insurance are mandatory?

HOWDEN MEXICO: Currently, Mexico does not have clear and specific regulations, so the biggest challenge is to maintain information security even without these regulations. Since April 2013, the only compulsory insurance that exists in Mexico is car liability insurance.

HÖH: How high is the tax burden in Mexico, and how strongly does it affect the activities of insurance brokers?

HOWDEN MEXICO: Currently, companies in Mexico must pay 30% income tax plus additional 10% of dividends and 10% of employee profit sharing. However, companies do have access to deductions and often end up with lower rates.

Insurance policies are tax deductible. For example, no value-added tax is levied on life-insurance policies. This is an advantage for companies and it is the responsibility of brokers to point this out to companies.

Arlen Cooper I Vice President International
Phone: +55 797 81083, email: acooper@ordashowden.mx

Grupo Ordás Howden
Founded in 1982, Grupo Ordás Howden is a leading company in the Mexican insurance market with strong expertise in all lines of insurance. Headquartered in Mexico City, the company is characterized by a strong client focus, exceptional talent and an entrepreneurial ethos. In addition to expertise in motor insurance, an experienced international desk and industry practices, an impressive technology platform helps to provide even better solutions to customers in many different lines of business.

HÖH: Why do we often have the wrong idea when we think about the size of Africa?

OLEA: For a long time, Europe was deliberately enlarged on maps to symbolise its power over other continents and countries. This is why Africa appears much smaller than it is in reality. In fact, Africa has a total area of 30 million km². Compared to this, China and the United States each measure just 10 million km².

HÖH: Are you expecting major growth in Africa in the coming years?

OLEA: Africa is the fastest-growing region in the world, even faster than South East Asia. Six of the 12 fastest-growing countries in the world are in Africa. The emergence of a new middle class and considerable improvements in economic governance are two important factors for long-term growth. Logistics is becoming more and more important, as are telecommunications and energy.

HÖH: What are the main risks for European companies doing business in Africa?

OLEA: Aside from the complicated political environment in most African countries, political violence and terrorism must also be taken into consideration. The World Economic Forum identifies the failure of national governments, financial crises and illicit trade as the main risks in this region. Social instability and the provision of resources are also problematic. Energy price shocks and water crises are possible.

HÖH: What does the African insurance market look like?

OLEA: The insurance market is still very immature throughout Africa – with the exception of a few markets like South Africa. Market penetration is below 3%. Ten countries account for 90% of all premiums paid on the continent. However, many markets in Africa are currently making progress in the insurance market. This development is boosted by an active regulatory agenda and reform, as well as by active steps taken by insurers to improve the immature market practices. The commercial insurers benefit from the growth of the energy, electricity and mining sectors and other affiliated infrastructures. M&A activities are rising, as new investors are being attracted to the continent and interregional activity is increasing, especially from South Africa.

HÖH: What special aspects of international insurance programmes must be considered?

OLEA: We are overseeing an increasing number of pan-African insurance programmes at OLEA. As there are different regulations for insurance policies in Africa, compliance with the local standards of each individual market is really crucial. This is a particular challenge due to there being 40 different insurance regulations in Africa. However, it is possible for the share that has to be placed in Africa due to regulatory requirements to be reinsured by renowned international players. The African reinsurers are rated from A- (Africa Re) to B+ (Continental Re). The minimum capital requirements were recently increased from 1 to 5 billion XAF/XOF (approx. 7.6 million EUR) in order to ensure that the insurance companies active on these markets remain strong and solvent.

HÖH: What regulatory challenges are companies confronted with? What insurance policies are mandatory?

OLEA: Insurance policies are increasingly being regulated in Africa. The CIMA code governs insurance in 15 different (mostly francophone) countries. It stipulates that risks of a member country may only be insured with an admitted insurer. The local obligatory shares have also been increased from 25% to 50% in order to keep more premiums in the countries (certain risks such as vehicles or health are retained completely). It is also important to bear in mind that these are “cash before cover” countries. This means that there is no cover before the premium has been paid. In addition to motor vehicle liability insurance that is obligatory according to the CIMA code, the insurance of imported goods is also mandatory. Even if the insurance in Portuguese- and English-speaking countries is regulated differently, these countries are increasingly tending to adopt rules from the CIMA zone (e.g. cash before cover). It also necessary in certain countries like Ghana, Kenya or Tanzania for local companies to utilise the local capacities before taking out offshore insurance.

HÖH: There are more than 50 countries with different languages in Africa. OLEA has established a network of branches and partner companies to cover such a large area.

OLEA: OLEA currently has branches in 24 countries and partners in 12 additional countries. We offer the same service quality everywhere, no matter whether French, English or Portuguese is spoken in the country concerned. That’s why we have appointed a network country manager in each country, who is able to answer all queries in English and is employed to deal with international programmes. We have also appointed a German-speaker as GrECo nova country coordinator to look after and help GrECo’s German-speaking clients.

HÖH: What do you focus on when advising clients and what special skills have you developed?

OLEA: The OLEA management team is based in Paris and consists of approximately 10 people. We know Africa very well and regularly spend time at our subsidiaries in order to understand market developments and the needs of our clients. It is very important for us to have a subsidiary or partner in almost every African country, as the legal environment, the market and the requirements are very different from country to country.

We established OLEA Specialities a few months ago to help our clients with their specific risks, as it is sometimes difficult to find solutions. We also regularly use an IT tool that is unique on the African market and offers our clients and partners access to all data they need to track their portfolio.

Thank you for your time!