International Insurance 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 razor-edge 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 InsuranceOutline

I. Basic concepts of insurance

II. International insurance issues

III. Approaches to addressing international insurance needs

IV. Addendums and topics for further discussion


Part I: Basic concepts of insurance

International InsurancePart I - Basic Concepts of Commercial Insurance

• Risk management strategies involve avoiding, assuming, controlling or transferring risk

• Insurance is the most common form of risk transfer

• Two major groupings of insurance are life and non-life

• Common types of non-life insurance• General liability• Property & marine (including loss of profits)• Automobile• Workers compensation


• Insurance in the US is highly regulated (principally by the states)

• 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


• 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)


Part II: International Insurance Issues

International InsurancePart 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


• Physical locations abroad– 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


• Common issues– 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


Part III: Approaches to Addressing International

Insurance Needs

International InsurancePart 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)


• Non-Admitted (i.e. “exporters policy”)– Smaller, less complicated accounts– Incidental exposures– Export sales– Temporary foreign travel– Incidental property exposures– Non-owned/hired auto


• Key Advantages – Simple– Cheap– No solvency issues– Consistent coverage and limits

• Key Disadvantages– May not comply with local regulatory requirement– Potential tax pitfalls– Limited services– Local coverage may be better


• 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


• Key Advantages – Ensures compliance with local laws– Avoids language and currency translation issues– Reduces likelihood of adverse tax consequences– Local expertise and services

• Key Disadvantages– Inconsistent terms and conditions– Coverage may not be as broad as US coverage– Generally higher rates– Insurer solvency governed by different regulations


• Combination– Best if coordinated/controlled out of headquarters via a CMP

• 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


• 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


Less Complex

Non-Admitted

Most Complex

Local Admitted Insurance

Controlled Master Program

Incidental Travel

Limited Product Exports

Incidental Property Values

Compulsory Coverage Needs

Physical Location

Multiple Locations

Large Values

Significant Risks


CONTROLLED MASTER PROGRAM

NON-ADMITTED DIC/DIL POLICY(IES)(Centrally Controlled by Headquarters)

US Policies Admitted Local Foreign Policies


Part IV: Addendum and

Topics for Further Discussion

Additional Discussion Topics

• Liability climate outside the US • “Indemnify” versus “pay on behalf of”• Travel assistance services• Kidnap and ransom insurance• Political risk insurance• Local customs• Travel warnings • Countries under sanction

• Endemic disease • Medical evacuation• 24-hour exposure • Defense base act coverage• US territories and possessions• Repatriation expense • Credit insurance• 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 WarningAs of 4/22/11

• Mexico• Burkina Faso • Nigeria• Cote d'Ivoire• Iraq• Bahrain• Lebanon• Syria• Egypt• Algeria• Mauritania• Afghanistan• Yemen• Mali• Eritrea• Libya• Pakistan• Haiti

• 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

25

http://www.travel.state.gov/

Countries Under Economic SanctionAs of 4/22/11

• Balkans• Belarus• Burma• Cote d’Ivoire• Cuba• Democratic Republic of

the Congo• Iran• Iraq

• Liberia• Lebanon• Libya• North Korea• Somalia• Sudan• Syria• ZimbabweSource: http://www.treasury.gov/resource-center/sanctions

26

http://www.treasury.gov/resource-center/sanctions

http://www.treasury.gov/resource-center/sanctions

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International Insurance Managing Foreign Risk Through Insurance Issues & Solutions