For risk managers whose operations expand into Europe, cultural divides and differing levels of exposures aren't the only issues on their minds in the wake of a court ruling that may drive changes in the way they place insurance coverage.
A European Court of Justice ruling in June 2001--Kvaerner v. Staatssecretaris, referred to as "Kvaerner"--barred corporations from writing all of their European insurance coverage from any European Union country with the lowest taxes simply as a means of avoiding higher taxes in other EU countries where the company in question had significant exposures.
The court ruled that "within the European Union, insurance premium tax (IPT) must be paid in the country where the risk is located, even if the policyholder is a group (holding) company in another country," according to an analysis from Tax Notes International, a newsletter published by Tax Analysts, a nonprofit publisher in Falls Church, Va.
"International groups should make note of that decision, as it could lay a trap for the unwary that take out worldwide insurance policies," the newsletter said.
Following that ruling, tax authorities in individual countries are becoming more savvy about global companies' efforts to minimize their insurance tax dollars around the world, brokers said.
That, combined with the spirit of Sarbanes-Oxley seeping steadily into the mindset of regulators and legislative bodies around the world, makes "going local" increasingly imperative, experts warn.
"Right now, probably the biggest issue out there is the use of global nonadmitted coverages," said Rich Yarborough, vice president of international risk at The Hylant Group, a Cleveland, Ohio-based insurance brokerage, referring to coverages ranging from property to general liability to directors and officers insurance.
(See related article on page 30 for further discussion of global D&O insurance.)
"Historically, a lot of that has been written from the United States," but all of that is changing now, Mr. Yarborough said.
"You have to be very careful not to create a tax situation where you could be fined or [where a] local management creates legal problems because you're perceived to be evading taxes," he said.
Meanwhile, "a consistent question that is being raised these days is compliance," according to Jim Gervang, vice president and corporate director of international risk services at Redwood City, Calif.-based ABD Insurance and Financial Services--a member of the Worldwide Broker Network, a grouping of 53 brokerage firms in close to 50 countries.
"Increasingly, U.S. companies want to understand what coverage they need to have by law in every country they're entering," said Mr. Gervang.
He noted, for example, a common thread in a lot countries--"where if you own or long-term lease an auto, your U.S. insurance policy won't cover that."
"So, now you see risk managers asking, 'What is the typical coverage that a company operating in this country buys? What are the limits?'"
"In some countries, you'll see companies buying an employers liability policy because employees have a right to sue you there; in other countries that exposure may already be covered by a workers' compensation policy," he said.
(Another network of international brokers is also available to help U.S.-based risk managers placing foreign exposures--Columbus, Ohio-based Assurex Global.)
Daniel P. Walsh, senior vice president and international practice leader at Wachovia Insurance Services in New York, said conversations with risk managers often move beyond discussions of legal requirements. "It's more and more prevalent for me to have a conversation about what is legally required in a country insurance-wise--what I call a 'bare-bones approach'--versus a standard local coverage," he said.
For example, he noted that while general liability coverage is rarely required from a statutory standpoint locally, "we'll recommend that our clients buy it so they maintain a good local standard."
Doug Fay, president of Globex International Group, said some countries are now requiring local coverages in areas where they previously didn't, such as D&O. "Nine months ago, the Philippines said, 'If you have to do any D&O, you have to do it with local coverage,'" he noted.
D&O coverage overseas is rapidly becoming a major local issue, Mr. Gervang agreed. "Firms should be considering local, admitted D&O policies in certain countries," he said. "Local, admitted policies are arranged for general liability cover and often employers liability cover outside of the United States as part of global insurance programs."
However, he noted that problems might arise managing other forms of liability. "In Brazil, for example, a director can potentially have his or her assets frozen if sued and there is not a local, admitted D&O policy in place," Mr. Gervang said.
Directors and officers in countries such as France and Italy have greater exposures based on the local systems and laws than those other countries, and these local managers often raise concerns about being covered under only a U.S.-based policy, he added.
"This issue has been raised over the years by a number of our WBN members and some our clients' international subsidiary management, but the concern regarding this exposure and situation has been steadily increasing in recent years," Mr. Gervang reported. "Insurance carriers such as Chubb and AIG are beginning to address this issue in their product offerings as well."
Another major network of international brokers is also available to help U.S.-based risk managers placing foreign exposures--Columbus, Ohio-based Assurex Global.
