Transcript Managing Foreign Risk Through Insurance Issues & Solutions

International Insurance
Managing Foreign Risk Through
Insurance Issues & Solutions
Risk in a Global World
• Great deeds are usually wrought at great risks.
Herodotus (484 BC - 430 BC)
• Every good thing in the world stands on the razoredge of danger.
Thornton Wilder (1897 - 1975)
• There are risks and costs to a program of action. But
they are far less than the long-range risks
and costs of comfortable inaction.
John F. Kennedy (1917-1963)
International Insurance
Outline
I.
Basic concepts of insurance
II.
International insurance issues
III.
Approaches to addressing international insurance
needs
IV.
Addendums and topics for further discussion
International Insurance
Part I:
Basic concepts of insurance
International Insurance
Part I - Basic Concepts of Commercial Insurance
• Risk management strategies involve avoiding, assuming,
controlling or transferring risk
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Insurance is the most common form of risk transfer
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Two major groupings of insurance are life and non-life
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Common types of non-life insurance
• General liability
• Property & marine (including loss of profits)
• Automobile
• Workers compensation
International Insurance
Part I - Basic Concepts of Commercial Insurance
• Insurance in the US is highly regulated (principally by the states)
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Insurance coverage in the US is largely uniform and consistent
between insurers and from state to state
• Most insurance in the US must be placed with admitted insurers
• Some insurance in the US is compulsory
• Automobile
• Workers compensation
International Insurance
Part I - Basic Concepts of Commercial Insurance
• Insurance has tax implications
• Premium payments
• Loss recoverables
• Insurance in the US typically restricts coverage to losses
occurring or adjudicated in the US
• Tradition
• Lack of insurer capabilities
• Lack of insurer knowledge
• Insurability issues (e.g. flood, earthquake, poor
construction)
• Government regulations (e.g. sanctions)
International Insurance
Part II:
International Insurance Issues
International Insurance
Part II – International Insurance Issues
• Foreign Travel
– Injury or sickness (e.g. workers comp, quality of care, endemic
diseases)
– Hospital bill payments
– Financial responsibility (e.g. auto, presumption of guilt)
– Kidnap & ransom
– Evacuation and repatriation
– Injury or damage to property of others
• Foreign Sales
– Damage to goods in transit
– Damage to goods while in storage
– Injury caused by defective product
International Insurance
Part II – International Insurance Issues
• Physical locations abroad
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Damage to building or contents
Loss of income
Injury or damage to property of others
Expatriates, foreign nationals and third country nationals
Automobiles
Local regulations
International Insurance
Part II – International Insurance Issues
• Common issues
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Admitted insurance requirements
Compulsory insurance (always admitted)
Language issues and requirements
Legal system (e.g. Napoleonic code, common law)
Insurer solvency
Services (loss control, consultation, claim handling)
Currency translation
Consistency of coverage and limits
Tax consequences
International Insurance
Part III:
Approaches to Addressing International
Insurance Needs
International Insurance
Part III – International Insurance Solutions
• Non-Admitted
– Extend US policies or issue separate non-admitted policy (e.g.
foreign package policy a.k.a. “exporters policy”)
• Admitted
– Purchase local foreign policy/policies (independent purchases
vs. controlled)
• Combination
– Provide US based DIC and DIL in combination with admitted
foreign coverage (e.g. Controlled Master Program or CMP)
International Insurance
Part III – International Insurance Solutions
• Non-Admitted (i.e. “exporters policy”)
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Smaller, less complicated accounts
Incidental exposures
Export sales
Temporary foreign travel
Incidental property exposures
Non-owned/hired auto
International Insurance
Part III – International Insurance Solutions
• Key Advantages
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Simple
Cheap
No solvency issues
Consistent coverage and limits
• Key Disadvantages
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May not comply with local regulatory requirement
Potential tax pitfalls
Limited services
Local coverage may be better
International Insurance
Part III – International Insurance Solutions
• Admitted
– Purchased either independently by local representative or
coordinated/controlled through headquarters (CMP)
– Compulsory coverage required
– More than an incidental presence
– Owned or leased foreign locations
– Foreign employees
– US employees stationed abroad
– Risk consultation, loss control or claim services desired
International Insurance
Part III – International Insurance Solutions
• Key Advantages
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Ensures compliance with local laws
Avoids language and currency translation issues
Reduces likelihood of adverse tax consequences
Local expertise and services
• Key Disadvantages
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Inconsistent terms and conditions
Coverage may not be as broad as US coverage
Generally higher rates
Insurer solvency governed by different regulations
International Insurance
Part III – International Insurance Solutions
• Combination
– Best if coordinated/controlled out of headquarters via a CMP
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Larger and more complex companies
Where sizable property insurance needs exist
Where significant compulsory insurance needs exist
Where uniform coverage and limits are desired
– Achieved through combination of local admitted policies in
combination with non-admitted DIC/DIL policies
• Fills coverage gaps
• Provides uniform limits
International Insurance
Part III – International Insurance Solutions
• Key Advantages
– Properly done, provides coordinated program with relatively uniform coverage
and limits
– Balance sheet and P&L protection
– Cost savings
– Better corporate management control
– Avoids language and currency translation issues
– Reduces likelihood of adverse tax consequences
– Local expertise and services
• Key Disadvantages
– Requires high level of underwriting expertise
– Limited number of insurance intermediaries or companies with complete
capabilities
– May be costly to implement
International Insurance
Incidental Travel
Multiple Locations
Limited Product Exports
Large Values
Incidental Property Values
Significant Risks
Compulsory Coverage Needs
Physical Location
Less Complex
Non-Admitted
Most Complex
Local Admitted
Insurance
Controlled Master
Program
International Insurance
CONTROLLED MASTER PROGRAM
NON-ADMITTED DIC/DIL POLICY(IES)
(Centrally Controlled by Headquarters)
US Policies
Admitted Local
Foreign Policies
International Insurance
Part IV:
Addendum and
Topics for Further Discussion
Additional Discussion Topics
• Liability climate outside the US
• Endemic disease
• “Indemnify” versus “pay on behalf of”
• Medical evacuation
• Travel assistance services
• 24-hour exposure
• Kidnap and ransom insurance
• Defense base act coverage
• Political risk insurance
• US territories and possessions
• Local customs
• Repatriation expense
• Travel warnings
• Credit insurance
• Countries under sanction
• Lloyd’s of London
Typical Travel Assistance Services
• 24 hour toll free multi-lingual operators
• Country-specific information (e.g. cultural)
• Visa & passport requirements
• US state department travel advisories
• Emergency message relay services
• Embassy and consular information
• Emergency travel arrangements
• Referrals to attorneys
• Referrals to physicians and hospitals
• Medical evacuation/repatriation assistance
• Prescription replacement or refill assistance
• Interpreters
Countries Under Travel Warning
As of 4/22/11
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Mexico
Burkina Faso
Nigeria
Cote d'Ivoire
Iraq
Bahrain
Lebanon
Syria
Egypt
Algeria
Mauritania
Afghanistan
Yemen
Mali
Eritrea
Libya
Pakistan
Haiti
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Central African Republic
Niger
Nepal
Sudan
Kenya
Somalia
Saudi Arabia
Chad
Guinea
Democratic Republic of the Congo
Colombia
Burundi
Philippines
Iran
Democratic People's Republic of Korea
Israel, the West Bank and Gaza
Uzbekistan
Source: www.travel.state.gov
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Countries Under Economic Sanction
As of 4/22/11
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Balkans
Belarus
Burma
Cote d’Ivoire
Cuba
Democratic Republic of
the Congo
• Iran
• Iraq
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Liberia
Lebanon
Libya
North Korea
Somalia
Sudan
Syria
Zimbabwe
Source: http://www.treasury.gov/resource-center/sanctions
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