Going Global Can Leave RMs Exposed
Large companies have long been involved in international trade, but in todays global economy many smaller and medium-sized companies are making the leap to foreign markets.
According to government figures, the number of small and medium-sized U.S. firms exporting goods more than doubled in the 1990sinternational trade now accounts for one-third of U.S. Gross Domestic Product.
While foreign markets can offer great potential for U.S. companies, they also carry risks that are compounded by legal, linguistic, cultural, economic and political differences.
Losses that are routinely covered at home may be excluded under a policy in another country. A U.S. company that tries to patch together policies from several insurers may find itself without adequate coverage in some countries or even paying for coverage it doesnt need in others.
Companies conducting business across borders, or getting ready to, have unique exposures that may not be addressed by some carriers or standard commercial insurance programs.
Companies with business dealings in other countries should consider investigating “due diligence” in their carrier to assure that it fully understands the nuances of the global market and has a broad range of specialized products and services.
An insurerer with international expertise can offer peace of mind as companies do business in new territories. It can also help a client evaluate expansion opportunities and protect itself against potential political hotspots.
There are four key areas in which companies should perform due diligence when searching for an insurer with the expertise to manage the unique exposures of “going global.”
Underwriting expertise: To offer the best program, an insurer needs to know the local market, including the legal jurisdictions, the economic climate and the language. A network of local representatives based worldwide can offer insight on a countrys unique insurance requirements from environmental impairment liability coverage in Germany for certain industries to pure financial loss coverage in France. The local network also should provide critical information on changes in the legal or economic landscape. These include terrorism or natural catastrophe pools, which vary from country to country.
The insurer needs to be abreast of new coverage developments as political and economic forces bring about rapid market changes.
For instance, as a result of the Iraqi reconstruction, U.S. companies doing business in that country are now faced with having to purchase federally-mandated Defense Base Act coverage and finding a carrier licensed to write it. Additionally, at a macro level, there should be an insurance professional dedicated to overseeing all the elementsboth foreign and U.S.of a companys multinational insurance program.
Specialized products: The political and economic landscape in foreign countries creates different business risks for companies such as currency devaluation, coinsurance deficiency, tax liability and political risk. In addition, if a company experiences a loss, it may be faced with collectibility issues since a lack of local independent rating companies makes it difficult to ascertain the financial strength of local carriers. An insurer should offer a broad portfolio of products to address these issues as well as meet the different stages of a companys overseas expansion.
A company needs an insurance program that can grow with its international operations. For those just starting out overseas, from manufacturers to service firms, the liabilities may not be obvious. A simple trip to a foreign customer, however, can create a variety of exposures, from liability issues including workers compensation and automobile to property issues such as the theft of sales samples or laptop computers. Purchasing individual policies to cover all of those exposures would be expensive and time-consuming. A better approach is to find an insurance carrier that can design a portfolio of coverages that can handle the foreign exposures.
As a company expands and establishes a physical presence overseas, it will need a more sophisticated insurance program, one that is centrally coordinated and that blends both admitted and nonadmitted coverages. Such a program is known as a controlled master program.
Under this approach, core coverages are included under the admitted insurance policies. A difference in conditions and/or a difference in limits policy is purchased to fill in any gaps. This ensures that the program provides the same broad protection the company is accustomed to for its U.S. exposures.
For example, companies should consider the differences in property valuations and covered perils from country to country. A company will need a policy that covers those differences in conditions and/or differences in limits to ensure a consistent level of protection worldwide. A controlled master program offers several advantages over a “patchwork” approach: it ensures that the companys global insurance coverage meets a desired level of protection; eliminates gaps in coverage and expensive coverage overlaps; and provides for efficiency of services on a global basis for loss control and claim handling.
A global network: While it is important that an insurer offer an array of multinational products including a controlled master program, it is equally important that those products be supported by an experienced, global network of service providers to handle claims and loss control. Some key areas to consider when examining a carriers infrastructure include the number of overseas offices (owned and affiliated); loss control services and expertise available on a local basis; claim handling procedures for outside U.S. losses; and medical assistance services available for employees if they are injured or become ill when on business outside the United States.
Financial strength: In 2003, some 22 insurers became insolvent, while a challenging economy over the past few years has caused a number of other carriers to either withdraw from the multinational insurance arena or significantly cut back their global network. It is critical that the insurance carrier have the financial stability and commitment of senior management to be a player in this market. The insurer should have a track record in the region and stand behind its overseas affiliates.
At the end of the day, it is crucial that the carrier have the financial strength to make good on its promise to pay if a company has a covered loss. Companies should utilize independent rating agencies such as A.M. Best, Standard & Poors and Moodys to assess a carriers financial strength.
Finding a multinational insurance company with all the “right stuff” can help a company avoid or mitigate the risks associated with conducting business in other countries.
Conducting business across borders can be lucrative, but it is can also be filled with danger for those companies seeking a patchwork approach to protect their assets and their people.
Conducting due diligence on an insurance carrier may seem like more work initially, but in the long run it can provide the building blocks to a long-term relationship with a carrier that meets a companys multinational insurance needs.
Steven R. Pozzi, managing director and senior vice president at Chubb & Son and chief underwriting officer for Chubb’s Commercial Insurance business unit, is based in the company’s Whitehouse Station, N.J., office. He can be reached at firstname.lastname@example.org
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, February 13, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.