Navigating the nuances of multinational insurance coverage
Thinking of expanding operations or incorporating entities in foreign countries for tax purposes? New contracts, suppliers or customers overseas? Understanding the insurance implications is critical for planning, cost benefit analysis and most importantly compliance. At Bellrock, we understand the nuances and complexities of insurance coverage in foreign countries and work closely with our clients to design a customised global insurance programme that is fit for purpose and complies with regulatory requirements.
Not only do local requirements vary throughout the nations in which global corporations normally operate, but some countries have sector-specific legislation that organisations must be aware of. It is consequently necessary for multinational corporations to thoroughly analyse their local operations’ insurance programmes – both global programmes and stand-alone plans, to establish if they are in compliance with local laws. Due to various filing and capital requirements, coverage terms, conditions, and allowable limitations can vary greatly between countries.
Here we traverse the three most common approaches to managing international exposures:
1. Australian Policies expand coverage to worldwide Jurisdiction and Territorial limits
When reviewing your policy schedule, you may note the headings Jurisdictional Limit and Territorial Limit. What exactly do these mean?
Territorial Limit refers to the location where the Insured Event has occurred.
Jurisdictional Limit refers to the court system where the claims can be brought.
Many insurance policies will restrict the cover to Worldwide excluding USA and Canada.
Where possible, amending the cover with an insurer for Australian based business is the simplest way to provide cover overseas. This will generally only be suitable for Australian entities.
For example, recently a manufacturing client in Australia, won a new contract with a client headquartered in New York. The contract was governed by the laws or jurisdiction of the State of New York, and therefore the jurisdictional limit needed updating to include the USA.
2. Local policies placed in each country
This may be the most cost effective way to place insurance for each entity/subsidiary however it is fraught with risk. Though it provides that entity with autonomy over the level of coverage, the consistency to ensure that all policies are placed appropriately and are fit for purpose diminishes greatly. It is extremely difficult to ascertain the policy coverage, terms and condition because the scope of insurance will vary from one country to another.
From a claims perspective, there will be no oversight of claims data when purchasing an individualised local placement. We have experienced challenges in obtaining claims data, including frequency, costs, and premiums which in turn makes it harder to implement and monitor risk management strategies across the globe.
Lastly, a company’s market leverage to secure broader coverage and competitive terms is lost as the risk profile is not based on a global basis but rather on the individual country basis.
3. Master Global Programme with local policies where required
An international programme, which consists of localised policies supported by a master policy normally created in the nation where your company’s head office is located, is the most adaptable choice.
It is imperative for your risk advisor to collaborate with international insurers who have global reach coupled with partnering with locally admitted risk advisors to design a wholistic global programme that is compliant and consistent across all nations.
Under a Master Global Programme incorporating a DIC/ DIL clause is critical to ensure terms and conditions are uniform with limits consistent across all global business operations. A DIC /DIL means difference in conditions (DIC) and difference in limits (DIL). The DIC clause states that if a claim is made against a locally issued in-country insurance and the provisions of that policy do not respond, the larger terms of the master policy will apply to pay the loss. Its supplementary DIL provision covers the multinational if the claim happens in a country where the local policy limitations have been exhausted, and it will apply if the master policy has greater limits.
DIC/DIL is essential in the event of a claims resolution where the insurer is not licensed to make payment in such jurisdiction where the loss occurred. Coupled with this clause, the Financial Interest Coverage (FI) is issued under the Master Programme to ensure protection under the master programme by providing cover for the financial interest of the multinational company arising from a foreign loss or where the loss occurs in a restrictive country where it has a financial interest.
Summary
Global programmes have shown a strong growth trajectory. Anticipated drivers of future growth include: our ever more interconnected world, a broadening customer footprint as international companies expand, the increasingly complex regulatory, tax and reporting environment around the world, and lower barriers to entry as digital tools and portals help facilitate service improvements. Global programmes ensure full insurance coverage and can help prevent any regulatory violations.
Conducting multinational business operations can be complex and requires specialist advice regarding risk management and transfer. Such advice should be sought during the planning stage of business expansion so appropriate adjustments can be made to your insurance program in response to the changing risk landscape your business may face.
To discuss multinational risk management and programme placement, please contact a Bellrock Advisor via the form below.
