Building a Global Insurance Program
In September of 2015, Brennan Knopp published a blog outlining Global Insurance Considerations. The items highlighted: Indemnification, Claims Adjustment, Defense, Insurance Certification, Trade Sanctions, and Tax Considerations play an integral role in how clients need to manage their insurance coverage in a foreign jurisdiction. Today, we'll take this topic a step further to discuss how our clients can build insurance programs in foreign countries using "global" insurers located in the client's home country or insurers in the local (or foreign) country.
There are a number of potential coverages that need to be addressed, and these will depend on the requirements in each country. Kidnap, ransom and extortion (KRE) insurance should be considered by any client that has employees traveling globally. There are many insurers offering single-trip, annual or multi-year policy solutions at inexpensive premiums. In addition, there may be terrorism, war, and political risk considerations as well. We'll focus more on these coverages in a subsequent post, but I would like to mention, that since KRE can be considered for extortion in a client's home country (including cyber extortion), it's something that can be valuable even for clients with minimal travel abroad.
For this blog, we'll work through the more traditional property and casualty (P&C) coverages that are secured with domestic, global or local foreign insurers on a regular basis.
To dove-tail with Brennan's blog, we can approach each of the factors mentioned by the client's preference (which will tend to be consistent) as well as the regulatory requirements (which will differ by country). The first requirement which needs to be verified is weather the coverage required is compulsory insurance in the country. The second requirement that needs to be verified is weather the country in which the risk resides requires admitted coverage for the line of insurance needed to protect the risk. Each country has its own set of rules and regulations that insurance carriers, providers and buyers need to follow in order to avoid penalties. These penalties also vary country by country and may be any of the following: voidance of coverage; hefty fiscal penalties; inability of carrier to pay or defend claims; fines; penalties or even jail time.
Non-admitted insurance refers to the placing of insurance outside the regulatory system of the country in which the risk is located. A non-admitted insurance policy may be one that is issued abroad or one in which the risk(s) may be included in a global master policy by an insurer that is unauthorized in the country in which the risk is located. An authorized insurer is one that has been granted permission to do business in a country (or region) by the local supervisory authority. Consequently, Admitted Coverage refers to an insurance policy issued through an authorized insurance company through an authorized intermediate. Some countries accept non-admitted coverage under certain circumstances and others prohibit non-admitted coverage.
For example, with respect to claims, clients need to ensure they are able to claim from their insurer for the replacement or repair of damaged property. With a policy that is placed in the client’s home country with a worldwide territory clause, covering all equipment around the world, the head office or parent company will be indemnified for cost to replace an insured piece of equipment. However, if the client has no way to shift those funds to the local foreign operations that have been subject to the loss, then the insurance becomes less effective.
Let's start talking about how to build a flexible program that will allow the parent company to be protected and allow the local foreign operations to place the coverage they need to operate competitively. Of course, this depends on the structure of the client's business and which countries they are operating in.
Let’s use the example of a client headquartered in Canada "ParentCo," and an entity "OpCo Foreign" operating in a foreign country (or multiple countries). They have a number of employees both in Canada and in the foreign country, as well as leased office space and other contracts in that foreign country (or multiple countries). ParentCo has the ability to use admitted, local foreign policies in the name of the OpCo Foreign, or non-admitted policies from ParentCo's country, to cover foreign exposures when permitted.
Picking the right market(s)
Unfortunately, there is no perfect insurance company for a client. Those insurers with a great blend of appetite, capabilities and global reach will still leave the client needing more: even the very best insurers can't be all things to all people.
A typical Canadian ParentCo will have their choice from dozens of insurance markets. Clients with high hazard or specialty operations will have a more limited choice but the Canadian market has many options, especially when you include London capacity, MGA's and the new markets who have entered Canada, and who are now developing a greater appetite.
What is very important, however, is that a client's insurer covering their Canadian operations may not be the right fit as the insurer for their foreign operations. Many insurers used by Canadian companies do not have the ability to issue admitted policies in the USA or foreign countries. This can be solved in two ways:
1. Clients can move their entire insurance program to an insurer with the capability to provide coverage in all of the client's operating countries.
2. Clients can place a new foreign insurance program to cover their exposures outside of Canada (there are insurers with an appetite for covering ONLY a client's foreign exposures).
For countries where non-admitted is not permitted, keep in mind that DIC/DIL clauses of your master program will be considered also as non-admitted coverage. So if you thought you had a contingency plan through this clause, it may be ineffective.
Local foreign policies
Additionally, even if a client's insurer has the capability to provide local policies in multiple foreign countries as part of a global master program for the client, which may align with the client's operations, it does not guarantee that the local foreign policies will have the coverage that is market standard for that country, nor does it guarantee that policies and certificates of insurance will be delivered in a timely manner.
And one further point is that the issuance of local foreign policies from the global insurers will result in minimum premiums at or above USD $2,500 per policy/country. Some clients do not have enough exposure in the foreign country to warrant these premiums and may look for other options.
Ultimately, there are many factors that will play in to the design of a global insurance program and, as outlined above, there are many market options and possible scenarios. Your broker should be able to provide consultation on each of these items along with the regulatory issues around the world.