Going Global? 5 Risk Management Issues to Consider 1) 2) 3) 4) 5)
Insurance Requirements of Foreign Countries Program Structure Policy Territory Exposures Economic and Political Risk
Insurance Requirements of Foreign Countries Regulatory issues fall into two broad categories: Compulsory Insurances and position on Non‐Admitted Insurance. Compulsory Insurances: Those lines of coverage required by law to be insured. Typically, compulsory requirements relate to some form of work injury coverage and Third Party Liability insurance for owned Automobiles. Exposures such as pharmaceuticals, chemicals, or professional activities may also trigger compulsory insurance requirements. Each country will have its own set of compulsory insurances. Non‐Admitted Insurance: Refers to policies that are placed with insurers that are not licensed within a particular territory. (Conversely, "admitted" coverage, means policies issued in a particular country by insurance carriers who are licensed to write coverage in that country.) Roughly 85% of all countries have prohibitions on the use of non‐admitted insurance. Violations of non‐admitted insurance regulations can create practical problems with program administration and loss settlement, but also lead to fines/penalties potential criminal prosecution. *See the Global Insurance Guide on the Tools and Resources page to request information about a particular country.
Program Structure Non‐Admitted, Local, “Gap”, or Controlled Master Program. Non‐Admitted Program: For many companies with only limited overseas operations, a Non‐ Admitted program is an effective vehicle for providing international coverage. As indicated above, under a Non‐Admitted program, coverage is provided solely by non‐admitted policies issued to the Parent company; no local policies are arranged overseas to comply with local insurance regulations. Local Program: One method some international companies use to avoid problems inherent in a Non‐Admitted program is to opt for a fully admitted Local Program. In the Local Program, the manager of each of the client's foreign subsidiaries buys insurance coverage in the local market; usually through an independent local broker. “Gap” Program: Since the Non‐Admitted and Local programs are usually unsatisfactory on their own; most multinational programs are hybrid of the two. One common hybrid is to allow the overseas manager to purchase local policies in the local market. The stateside risk manager then purchases a Non‐Admitted Excess/Difference in Conditions policy at the Parent company to plug any gaps in the local policies and bring coverage up to global standards. Controlled Master Program: A more sophisticated approach is to implement a Controlled Master Program or CMP. As indicated by the name, a Controlled Master Program is directed through a Master policy issued at the Parent company level that outlines the terms and conditions that apply to all international operations. Local policies, or "underlyers", are issued where appropriate by the overseas office of the insurer, at the request of the stateside underwriter. These underlying policies serve to satisfy indigenous legal requirements, provide access to special government funds or plans, facilitate foreign premium/tax/loss payments and provide a vehicle for overall account servicing.
Policy Territory As shown in the following chart, territories and jurisdictions must be reviewed to ensure that coverage applies in all cases. Also, it is very important to pay particular attention to what countries may be excluded from a General Liability or Property policy. See the example below of countries excluded from the Contingent Business Income coverage form of a major carrier.
Product Made In
Product Sold In
Occurrence Suit Is Takes Place Brought In
Policy Responding
U.S
U.S
U.S
U.S
U.S
U.S
U.S
Foreign
Foreign
Foreign
Foreign
U.S.
U.S.
U.S.
U.S.
Foreign
Foreign
Foreign
Foreign
Foreign
Foreign
Foreign
U.S.
U.S.
U.S.
U.S.
Foreign
Foreign
U.S.
Foreign or U.S.
Contingent Business Interruption Coverage Territory Coverage provided in Section 5., Extensions of Coverage, Item D. Contingent Business Interruption Coverage, is limited to property anywhere in the world except in the following countries, provinces or jurisdictions; Afghanistan; Albania; Algeria; Angola; Armenia; Azerbaijan; Bangladesh; Belize; Benin; Botswana; Burkina Faso; Burundi; Cambodia; Cameroon; Central African Republic; Chad; Cote D’Ivoire; Cuba; Democratic Republic of the Congo (formerly Zaire); Djibouti; Equatorial Guinea; Eritrea; Ethiopia; Fiji; Gabon; Gambia; Georgia; Ghana; Grenada; Guinea; Guinea-Bissau; Guyana; Haiti; States of Jammu and Kashmir in India; Iran; Iraq; Gaza Strip, West Bank and territories north of Latitude 32.80 N in Israel; Laos; Lebanon; Lesotho; Liberia; Libya; Madagascar; Malawi; Mali; Mauritania; Mauritius; Moldova; Mongolia; Montenegro; Montserrat; Mozambique; Myanmar; Namibia; Nepal; Niger; Nigeria; North Korea; Pakistan; Papua New Guinea; Aksai Chin Region and TransKarakoram Tract in People’s Republic of China; Republic of the Congo; Chechen Republic of the Russian Federation; Rwanda; Senegal; Seychelles; Sierra Leone; Somalia; Sri Lanka; Sudan; Swaziland; Syria; Tajikistan; Tanzania; Timor-Leste; Togo; Provinces of Agri, Batman, Bingol, Bitlis, Diyarbakir, Elazig, Hakkari, Igdir, Mardin, Mus, Sanliurfa, Siirt, Sirnak, and Van in Turkey; Turkmenistan; Uganda; Uzbekistan; Yemen; Zambia; and Zimbabwe.
Exposures A multinational company faces many of the same exposures overseas as in their home country. However, differences in legal requirements, political environments and even geography or climate require a review of operations on a country‐by‐country basis. Obvious risks include damage to property, injury to employees and automobile hazards. Although claims consciousness is generally much lower outside the USA, there is a trend towards increased litigation overseas in areas such as Products, Pollution and Directors & Officers Liability. Less obvious risks include new or increased exposures such as Trade Credit, Terrorism, Political Risk or Kidnap & Ransom. International operations in each country should be examined carefully with consideration given to inclusion of the following coverages in a multinational program: Protection of Assets/Income Liabilities to Others General Liability, including Real and Personal Property Products Liability Time Element, including Workers' Business Interruption Compensation/Employer's Contingent Time Element Liability Boiler &‐Machinery Emergency Assistance Property in Transit Services Sabotage & Terrorism Automobile Liability Crime Directors & Officers Liability Computer/Toll Fraud Accident & Health Malicious/Accidental Product Fiduciary Liability Tampering Excess Liability Automobile Physical Damage Professional Errors & Aircraft/Watercraft Hull Omissions Liability Kidnap & Ransom/Extortion Environmental Impairment Trade Credit Liability Expropriation Personal Lines for Expatriates Contract Frustration Aircraft/Watercraft Liability License Cancellation Patent Infringement Currency Inconvertibility Surety Product Rejection Weather
Economic and Political Risk The financial crises in the world economy, volatility of currency exchanges, and rising political violence all present major risk factors for companies operating in foreign countries.
Credit Risk: Receivables often represent a company’s largest current asset, and bad debt caused by a buyer’s non‐payment can impact a company’s earnings, bad debt reserves and future sales. While international trade continues to grow, so do the export risks. Bankruptcies and commercial defaults are significant around the world and while some of this is due to political risk exposures, much is due purely to default of the buyer. Credit insurance policies offer protection for both domestic and export markets and can be structured to include some or all receivables, for both very large and smaller exposures. Political Risk: In general, a company’s political risk exposure can be analyzed across four categories. Foreign Investments or Projects: including expropriation where a government action deprives a company of its beneficial rights of ownership, political violence, currency inconvertibility, and government breach of contract. Overseas Contracts: contracts made vulnerable in the event of political upheaval, loss or damage to mobile equipment, contract repudiation, and contract termination. Export Sales: public or private buyer non‐payment, contract cancellation, non‐ honoring of letters of credit, pre‐shipment losses from non‐sale of products. Trade Disruption: where events disrupt a company’s ability to source, manufacture, or deliver product to its customers.
*See the Terrorism and Political Risk Map on our Tools and Resources page for details regarding the risks in a specific country.
