Dr. James Kallman, ARM 9-1 Advanced PowerPoint Presentation ©2009 The National Underwriter Company

Dr. James Kallman, ARM 9-1

AdvancedPowerPointPresentation

©2009 The National Underwriter Company

Dr. James Kallman, ARM 9-2

This Advanced PowerPoint Presentation accompanies the “Tools & Techniques of Risk Management & Insurance” textbook. Each of the 28 chapters in the textbook are presented here in the following sections:

OutlineKey conceptsMajor sectionsChapter summary

©2009 The National Underwriter Company

©2009 The National Underwriter Company Dr. James Kallman, ARM 9-3

Contents

Techniques of Risk Management & InsuranceCh 1 Introduction to Traditional Risk Management……………1-1

Ch 2 Enterprise Risk Management…………………………….2-1

Ch 3 Risk Assessment: Identification…………………………..3-1

Ch 4 Risk Assessment: Quantification…………………………4-1

Ch 5 Overview of Risk Treatment Alternatives………………. 5-1

Ch 6 Non-insurance Transfer of Risk…………………………. 6-1

Ch 7 Insurance as a Risk Transfer Mechanism………………7-1

Ch 8 Overview of Alternative Risk Transfer Techniques…….8-1

Ch 9 Global Risk Management…………………………………9-1

Ch 10 Loss Control Techniques…………………………….….10-1

Ch 11 Emergency Response Planning…………………….….11-1

Ch 12 Business Continuity Planning……………………….….12-1

Ch 13 Claims Management………………………………….….13-1

Ch 14 Monitoring Claims for Financial Accuracy………….….14-1

Ch 15 Insurance Companies and Risk Management…….….15-1

Ch 16 Working with an Agent or Broker………………………16-1


Contents

Tools of Risk Management & Insurance

Ch 17 Commercial General Liability Insurance……………….17-1Ch 18 The Workers’ Compensation System………………….18-1Ch 19 Commercial Property Insurance………………………..19-1Ch 20 Directors and Officers’ Liability Insurance……………..20-1Ch 21 Employment-Related Practices Liability Insurance…..21-1Ch 22 Business Automobile Insurance………………………..22-1Ch 23 Crime Insurance………………………………………….23-1Ch 24 Capital Markets Risk Transfer Tools…………………..24-1Ch 25 Loss Control Tools……………………………………….25-1Ch 26 The Certificate of Insurance…………………………….26-1Ch 27 Surety Bonds……………………………………………..27-1Ch 28 Claim Reviews……………………………………………28-1


Chapter 9Global Risk Management

Chapter Outline• What is it?• Categories within TEP• Steps to Implement• The Insurance Option• Determining Local Insurance Requirements• Identifying Territorial Limits• Structuring a Worldwide Insurance Program• Other Exposures• Global Aspects of the Internet• Appendix: Application and coverage forms• Chapter Summary



What is it?• Three types of foreign exposures

• Temporary exposures• Export exposures• Permanent multinational exposures

• Global challenges• Physically distant from headquarters• Lack of foreign exposure knowledge• Limitations in domestic insurance policies• Requirements for local admitted insurance• Political unrest• Differences in healthcare standards• Claims management • Currency conversions


Chapter 9Global Risk Management Categories within TEP

• Specific types of exposures (some examples)• Property exposures• Liability exposures, including

• Premises and operations• Products• Automobile

• Human resource (employee)• Net income, including

• Political exposures• Creating a simple matrix: foreign X specific exposures (fig. 9.1)

Temporary Export Permanent multinational

Property Buildings Personal Cargo

X – portable bldgX – inventoryX – shipments X – shipments

X – buildingsX – machineryX – shipments

Liability Premises Operations

X – rentedX – travel

X – VesselsX - Shipping

X – owned bldgsX - production



Steps to Implement

• Identify Global risks•May be most difficult•Meet with senior officers

• Quantify and analyze global risks• Evaluate global treatment options

•Get suggested alternatives from vendors •Use legal counsel that specialize in international matters

• Implement selected options• Monitor and adjust


Chapter 9Global Risk Management The Insurance Option

• Admitted versus Non-admitted Carriers•Standard domestic policies may not provide coverage overseas•Admitted insurers are authorized in a domestic market•Some jurisdictions require coverage from state-owned insurers

• Advantages of Admitted Insurers•Premiums may be tax deductible•Claims handling may be easier•Reduced or no fines for non-local insurance•Intangible benefits from using local markets

• Disadvantages of Admitted Insurers•Foreign language and laws•Values in foreign currencies•Difficult to evaluate insurer’s strength•Communication with local agent•May be more expensive than a world-wide policy•Coordinating policy coverages a challenge


Chapter 9Global Risk Management The Insurance Option

• Advantages of Non-admitted Insurers•Policies written in English and based on US laws•Values in US Dollars•Easier to evaluate insurer’s financial strength•US underwriters and brokers•Fewer intermediaries required

• Disadvantages of Non-admitted Insurers•Premiums may not be deductible expenses•Uncertain accounting of claims payments

•Income or transfer of capital•May be taxable income to parent

• Discuss the global insurance options with a tax counsel



Determining Local Insurance Requirements• Some global insurers/brokers can provide country summaries • Some countries have unique insurance requirements

• Historic buildings• Employee health benefits



Identifying Territorial Limits• Property exposures

• Foreign property may be excluded from ISO forms• Political perils – standard forms may exclude global perils

•Confiscation•Currency inconvertibility•Expropriation•Forced abandonment•Nationalization•Political violence

• Transportation of property• Imports & exports of goods and equipment• Cargo “freight” charges for delays• Special packing required

Who owns the goods? Shipping terms to know:

Ex point of origin, FOB, FAS, C&F, CIF



Identifying Territorial LimitsSupplement

Types of shipping contracts – both FOB and FAS• Point of origin• Point of destination

• Installment or conditional sales contracts• Seller maintains ownership rights until the goods are delivered, installed, operating as specified, and final payment has been made



Identifying Territorial Limits• General Liability Exposures

• Coverage may be limited by ISO forms for: •Premises, operations, products, employee action•Bodily Injury or property damage by an occurrence•Occurrences during a policy period•Coverage territory•International waters or airspace•Personal and Advertising injury

• An International general liability policy may be available• Some insurers will endorse their policies for global coverage

Is coverage worldwide for occurrences?

Will it respond to claims or suits anywhere in the world?

Will coverage apply regardless of where products are made?



Identifying Territorial Limits• Automobile Exposures

• Overseas travelers often use or rent cars• Foreign jurisdictions have diverse financial responsibility laws• An international auto liability policy may cover this exposure• Using a local carrier facilitates claims handling

•Employee Exposures• Coverage of standard NCCI workers’ compensation policy unclear for US employees working abroad• Temporary not defined in the policy• Repatriation expense coverage may be desired• Endemic disease coverage may be desired• The risk manager must identify available health care sources• Supplemental coverages may be available• Local hires may require special coverages• Third-country nationals may require special coverages• Separate Employers’ liability coverage may be desired



Structuring a Worldwide Insurance Program• A basic problem

• World-wide insurance programs often have• multiple policies in different languages• admitted and non-admitted carriers• gaps in coverages

• Using a DIC Approach• Difference-in-condition policies bridge the above gaps• Provide uniform insurance terms and conditions• Advantages and disadvantages of a DIC Policy

+ Fills in coverage and limit gaps+ Provides uniform coverage- All policies must be policed- Claims may involve multiple carriers



Structuring a Worldwide Insurance Program• Using a Controlled Master Program

• May be issued three ways:• If admitted, issues local policy• If not admitted, my use subsidiary• If not admitted and no subsidiary may sub-contract

• Advantages of a Controlled Master Program• Uniform coverages and improved claims handling• One insurer handles coverage placements• Reduces number of parties in insurance program• One insurer issues documents (cert. of ins)



Other Exposures• Kidnap and Ransom

• Types• Ransom demands from actual or threatened kidnapping• Extortion demands from threats of bodily injury• Extortion demands from threats of property damage• Extortion demands from threats to contaminate property

• Most K&R policies include access to security services•Exchange Rate Risk (exporters)

• Defined: changes in value of goods sold in other countries• Hedge risk with forward contracts with a bank

• Export Credit Risk• Defined: variation in payments of foreign accounts receivable• Letters of credit – guarantee payment by bank•Credit insurance

• The EX-IM bank facilitates global trade• The OPIC enhances overseas investments



Global Aspects of the Internet• Wired companies face additional unique hazards

• Different legal structures or jurisdictions• Different privacy requirements• Non-standard information security systems• Lack of jurisdictional boundaries



Chapter Summary

• What is it? Temporary, export, & permanent multinational exposures

• Categories within TEP: Property, liability, HR, & NI

• Steps to Implement: same as a general RM process

• The Insurance Option: admitted & non-admitted insurers

• Determining Local Insurance Requirements: Use experts

• Identifying Territorial Limits: identify exposures in detail

• Structuring a Worldwide Insurance Program:

DIC & Controlled Master Policies

• Other Exposures: K&R, Exchange rate risk, Export credit risk

• Global Aspects of the Internet: undefined jurisdictions & laws

Documents

Dr. James Kallman, ARM 9-1 Advanced PowerPoint Presentation ©2009 The National Underwriter Company