OCTOBER 15, 2014
Risk & Insurance® partnered with FM Global to produce this scenario. Below are FM Global’s
recommendations on how to prevent the losses presented in the scenario. This perspective is not an
editorial opinion of Risk & Insurance®.
Six Dimensions of a Successful Global Risk Management Program.
1. Breadth and depth of a network Risk managers want a consistent level of products and hands-on
services delivered as well as the ability to offer broad, compliant, on-the-ground coverage. They need
to settle claims locally and they want their carrier to offer consistent performance in terms of policy
documentation and contract certainty.
2. State-of-the-art global master form combined with broad “standard” local underlyers The ideal
global program matches local coverage and master coverage as closely as possible. This maximizes
coverage in the local territory and the local loss payment. Should a loss occur, it can be paid with
certainty at the local level.
3. Balanced global and local service Most risk managers value consistency when it comes to certain
important aspects of their program, including capacity, coverage, claims and the level and quality of key
services they choose. Yet keeping local constituencies and decision-makers engaged (and happy) can be
an equally important element of a successful global program.
4. Consistent loss prevention engineering service, protocols and deliverables As companies expand
their footprints overseas, they often find the challenges they face in understanding hazards and
managing risks grow disproportionately. Companies often discover the prevailing standards of protection
and construction differ significantly from what they may be used to at home. Local codes may be lax or
non-existent, often in regions that may be more prone to natural hazards.
5. Claims control and settlement via in-house claims adjustment network One way of ensuring prompt
claims service anywhere in the world, is by insurers recruiting, training and retaining well-qualified
claims professionals with on-the-spot authority, who are located around the globe.
6. Success in the global arena A successful risk management plan depends on a concerted effort from
numerous parties, including underwriters, engineers, brokers, contractors and countless others who are
integral to its success. Taking that same simple plan “global” means that extended communication lines,
cultural differences, language barriers and time zones must be added to the list of challenges.
WHAT WOULD YOU DO?
LESSONS LEARNED - PARTNERS CONTENT
“We work for Bank Negara Malaysia, the
insurance regulator in this country,” Mr. Razak said.
“We have questions about your coverage of this
“Like what?” Treme said, again shooting Smitty a
look, which Smitty ducked.
“Who is your local carrier?” Sam Yei asked.
“Ungku Assurance,” Treme said.
“And your carrier in the United States?” Yei said.
“Terra Firma Ltd.,” Treme said.
“If I may, gentleman, may I ask what’s going on
here? We’ve got a severely damaged factory here
and I need to get to work on the assessment and
claims process,” Treme said.
“Yes, we think that is highly advisable,” Razak
“We only have one question of substance for you
today,” Yei said. “Although I think we are going to
have more later,” he said unsmilingly.
“And that is … , ” Treme began.
“And that is … , ” Razak continued for him,
holding out a document.
“Why did you arrange for only $5 million in
coverage for a $250 million operation, that is, if your
valuations can be believed,” Razak said.
“Gentlemen, we are a very well capitalized
company with substantial reinsurance protection on
our global program,” Treme said.
“I don’t think there’s going to be a problem
drawing down from our reinsurers to get this plant
back up, if that’s what your concern is,” Treme said.
“I hope that’s the case because it’s of great
concern that you have a gap in the tens of millions
in your local coverage in all probability,” Yei said.
Ben Razak jerked his head in the direction of the
“The good people and the government of Shah
Alam trusted that your company came here with
good intentions, to do business and create local
jobs,” Razak said.
“Your company’s failure to place adequate local
coverage brings that premise substantially into
question,” he said.
Minutes later, Treme stood with Smitty Fields,
watching the two black SUVs wheel out of the
storm-damaged parking lot.
“What do you think all of this means?” Smitty
said to Treme.
“I’m not sure. I’m not sure,” Treme said. “I
don’t want to think it, but we might be a little bit
screwed,” he said.
Six months later, John Treme was on a
conference call with his broker, Fred Tallex, and a
vice president with Terra Firma, Suzette Pines.
“Okay, Fred, do you want to take us through this?”
John said to start things off.
“Sure,” Tallex said,
sounding like he was already
mentally finished with the
“Bank Negara Malaysia
informed us yesterday that
we are free to draw down the
$40 million from Vitalex’s
reinsurers to complete the
factory restoration,” Fred
said. “That’s the good news.”
“You all saw the email
this morning,” he continued.
“Yes,” said Suzette Pines,
Treme didn’t say
“No one got fined, but the
local regulators have got our
brokerage and Terra Firma
in their cross-hairs now,”
“Sure looks like it,”
There was a long, awkward pause, which John
attempted to fill.
“Well, we’ve only got a month or two to firm up
the coverage on the renovated plant,” Treme said.
“Can we get going on that?”
“Who’s we?” Pines asked.
“Well, you’re our carrier in Asia,” Treme said.
“John, not any more we’re not. We have lost our
appetite for this risk. A regulator that’s going to be
in our grill all day long now will do that.”
“So you’re not … , ” Treme began.
“Sorry John, sorry, but no way,” Suzette said.
“No way if I want to keep my job and I do want to
keep my job, such as it is,” she said ruefully.
“Guys, I’ve got to go, I need to pick up another
call,” Pines said.
“Bye, Suzette,” Fred said.
Treme was too nonplussed to say goodbye.
“Now what?” Treme said to Fred after Suzette
“I really don’t know,” Fred said. “This project has
so much stink on it I don’t know who we’re going to
find and that’s not even bringing up price.”
“Well, can you …” Treme began.
“Yep, I’ll get started today, John. You know we
got reprimanded too,” Fred said, barely veiling his
“I know Fred, I know,” John said.
The business restoration delays suffered by
Vitalex in getting the reinsurance draw-down amidst
the ongoing distraction of the investigation by
Malaysian insurance regulators had severe impacts
on Vitalex’s ambitions in Asia.
Vitalex suffered 14 months of business
interruption due to the storm damage and the time
needed to jump through regulatory hoops while
trying to get the plant rebuilt.
A Munich-based competitor, Mayer Corp., which
had a nimble, efficient manufacturing facility
in Vietnam, was successful in taking substantial
portions of the Asian oncology drug market that
Vitalex was counting on as a difference maker.
Other markets might pay out like Asia had the
potential to, but it would be years before Vitalex
would be in a position to take advantage of them.
Disclaimer: The events depicted in this scenario
are fictitious. Any similarity to any corporation or
person, living or dead, is merely coincidental.