As the middle class grows in emerging markets like Brazil, so too does the incidence of litigation, according to Alfred Bergbauer, head of multinational casualty for XL Capital. He recently spoke with Best's News Service at the recent Risk and Insurance Management Society's annual conference in Los Angeles.
Q: What emerging risks or issues do you see international companies concerned with these days?
A: I'd have to say the overarching issue that has been facing multinationals for the past five to six years is the issue of regulations, and that's regulation on a couple of levels. Insurance premium tax at the front end, when we secure a contract to pay premium, and the adequacy of that tax. Then at back end, the potential taxation of claims payments depending on the way an insurance program is structured.
There's a lot of conversation, an awful lot of discussion around those regulations and how to put together a compliant program. Really, the issue to develop a compliant program is really not the question. The question is how do you develop a program that fits the risk appetite and risk finance plan of an individual company?
Q: Are you seeing an increase in litigation in other countries?
A: We certainly are. There's a very distinct trend in emerging markets: China, Brazil, and India. It coincides with the tremendous economic expansion that's going on in those countries. There's a real middle class that has re-emerged in China, is emerging in Japan as well as Brazil.
As those individuals generate wealth and build capital, travel the world, when they're injured by products and the actions of corporations, they're coming back and seeking compensation in ways and on levels that we've never seen before. Now, I'm not saying that the litigation is on par with say the U.K., the U.S., or Australia, but it's a trend that is real and worth noting.
Q: Do you think that North American companies are expanding their global operations?
A: Most definitely. When you look at the sales and turnover of North American companies, the split is, for most companies, going to 50% or even more than 50% overseas. There are a few trends that are worth noting. One is China. In my career, I've seen 25 years of China intoxication. Companies just went to China to go to China. Companies engaged in activities that didn't yield economic benefit necessarily.
What we're seeing now with China specifically is corporations, not just U.S., multinational corporations, beginning to ask the question, should we be in China at the level are? Should we begin to scale back, and how do we do that? Is China necessarily worth the cost of the executive time and the capital expenditure that we're making in China? It's very interesting. At the same time, they're looking at potentially onboarding back to the U.S. There's some very complex, company-specific, industry-specific issues and questions being asked in industry today.