INTERNATIONAL INSURANCE

(January, 2019)

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Policies written in the U.S. for businesses typically do not cover losses that occur outside of the U.S., such as Central and South America, Africa, Australia, Asia and Europe. Firms that operate in more than one country have loss exposures that, traditionally, have been minor in the U.S. and Canada, i.e., political risks, endemic diseases, and uprisings. Insurance for international loss exposures can be purchased through excess and surplus lines brokers, as well as through the international divisions of several large insurers.

Export activity is a strong indicator of interaction with other countries. According to the U.S. Census Bureau's "Profile of U.S. Exporting Companies, 2015 – 2016”:

· Over 287,000 U.S. companies exported goods

· These U.S. companies exported more than $1,290 billion in products

· Over 95% of exporting companies had 500 or fewer employees

International insurance should be a consideration for even the smallest international operation. A single employee or officer located in a foreign country to produce sales, even through a foreign distributor, creates the need for international insurance. Activities that require international insurance are many and varied, including school or church study groups; salespersons traveling abroad; an engineer attending a conference in a foreign country; licensing a foreign firm as a product distributor; a company that sponsors tours/safaris; academic, business or cultural exchange activities; or for employees, contract workers or consultants on assignments abroad.

Firms dealing with international commerce revolve around the following three categories:

1. Companies with employees who make overseas visits or who maintain temporary residency outside of the U.S. and Canada. All varieties of companies involved in international commerce often send sales people overseas for extended periods. Manufacturers and contractors may need to send advisors, repair persons or engineers to overseas installations.

2. Companies that have one or more contracts with foreign warehouses or distribution centers.

3. Companies that own or lease property in a foreign country, operate foreign subsidiaries and/or operate foreign service operations.

Deciding on proper coverage is complex. Thorough due diligence is crucial since each country has its own laws, customs and exposures. It is critical to work with an underwriter who has experience in the country where the customer has operations. Companies with foreign operations should consider the following coverages:

Aviation	Accident, Sickness and Health	Auto
Crime	Directors and Officers	Employment Practices
Employee Benefit	ERISA	Difference in Conditions
Difference in Limits	Kidnap and Ransom	Letters of Credit
Credit Insurance	Liability	Ocean Marine Cargo
Political Risk	Property and Time Element	Recall
Workers Compensation	War Risk

1. Firms with employees who either travel to or temporarily live in foreign countries should consider the following coverages:

· Foreign Workers Compensation: There is no national NCCI Workers Compensation endorsement to cover U.S. workers while working temporarily in foreign (extraterritorial) countries. This is understandable since coverage territory is determined by various state laws, focusing on their own workers. It would be worthwhile for businesses to check their own state’s laws since they may have limited foreign coverage available. If a source of foreign endorsement is found, read the language carefully. Typically foreign endorsements do not include coverage for employees who are hired in other countries. Insurance carriers with international arms may have their own endorsements to cover this temporary exposure. Further, it is important to work with the insured to clarify when coverage for employees ends. Insurers with experience operating in other countries should also be familiar with how and when another country’s compulsory coverage applies.

· Accident, sickness and health insurance to provide coverage for those activities not protected by workers compensation.

Note: Some markets have access to multi-national pooling arrangements that may provide easy service and cost-savings to firms with employees located overseas.

· Nonowned auto coverage that applies on a worldwide, excess basis.

· General liability insurance that applies on a worldwide (non-U.S. or Canada) excess basis.

2. The following coverages may be necessary for businesses that employ sales persons in foreign countries or who have contracted with foreign warehouses and/or distributors. This presumes that no U.S. citizen resides permanently in another country.

· Foreign Workers Compensation: add to the U.S. workers compensation contract.

· General liability on an excess basis

· Property: coverage may be necessary for owned personal property, i.e., stock, salesperson samples and exhibition property

· Automobile coverage on an excess basis

· Transit coverage

3. A permanent presence in a foreign country such as the ownership or long-term lease of real estate is the third category of foreign operations. Virtually all of the coverages referenced in this article need to be considered for these firms. It is important to work with insurance professionals who understand local conditions and laws. The process coverage analysis and selection in a non-U.S. operation is similar to what is necessary in the U.S., though property coverages may not be as broad. Underlying liability limits in European countries may seem excessive and coverage names and policy language may appear totally different. But in most instances, the various terms are easily understood. Consider the following British auto insurance terms:

· Policy Summary

· Motor Insurance

· Excess

· Service

· Authorized Legal Costs

· Statement of Insurance

· Cover

· Other Party

Basic liability and property concepts remain similar throughout the world.

Accident, Sickness and Health

It is possible for a person traveling abroad to become sick or injured in an accident. Should either of these events occur, there is a possibility that a U.S. medical insurer would not cover the incident. There is also the possibility that the foreign medical facility will not accept U.S. health insurance. Work with an international underwriter to determine what is required by local laws. Review existing health and medical coverages to determine how the policy will treat foreign claims. While the insured's carrier may reimburse the insured for the claim, the foreign medical facility may not accept the patient's American coverage card. Payment may have to be made either in cash, through a charge card or some other means. Countries with socialized medicine have separate rules for payment of medical treatment for foreign nationals visiting their countries. In some countries, medical facilities may be inadequate. Appropriate expatriation measures should be discussed with the company and employees. Again, a competent international underwriter who understands the country where your customer will be doing business can help identify coverage concerns and offer solutions.

Coverage for accident and sickness in foreign countries can be purchased. This insurance should cover on a 24-hour basis. If the business person's family is traveling with him or her, the coverage should apply to all of the family members who are traveling to the foreign country.

Endemic diseases that are unheard of in the U.S. are common in some countries. Malaria, tuberculosis, hepatitis, cholera and endemic (local) diseases can be specifically insured on some of the accident and sickness policies. The state department and the U.S. Embassy in the foreign country can provide information on local conditions. Inoculations, immunizations and other precautions may need to be taken before U.S. nationals travel to countries with broader disease exposures.

In other parts of the world (unlike in the U.S.) it is very easy to travel from one country to another. Many European countries are the size of states. One needs to be aware of all of the countries where the U.S. national will visit on business or travel to on the weekend. Companies may want to forbid travel to certain countries where there will be no guarantee of coverage.

The firm that is beginning to do business overseas and is sending a sales representative or an engineer or similar person to a foreign country should consider purchasing accident and sickness insurance that includes coverage for endemic diseases. Make sure that the policy's covered territories include all of the possible countries that this person might travel to or through (train, aircraft, and boat). When the firm expands into foreign business to the point that it has an employee permanently residing in a foreign country, the firm will purchase the equivalent of full-time medical insurance and a local form of workers compensation insurance. For many countries, workers compensation is offered only through the government. Socialized medicine and workers compensation may be available through a direct payroll tax. Companies with foreign offices and/or permanent foreign employees may need to work with international business specialists to make sure the company complies with all laws. Companies may wish to consider employing international accounting firms or other advisors to help with the transition.

A U.S. citizen who becomes sick or who is injured while outside the U.S. might find that no coverage is provided in a foreign country or coverage is provided only for accidental injury in a foreign country. In other words, there would be no coverage for medical expenses resulting from sickness. There are times when the foreign medical provider will not accept an assignment of benefits from a U.S.-based healthcare provider or that many U.S. healthcare providers will not cover the cost of transporting a sick or deceased person back to the United States (repatriation expenses). As there is more than one policy for this coverage, reviewing the policy wording will enable the agent and customer to make an informed decision regarding the necessary coverage. Typically, these policies are written on a short term basis (less than 6 months) and cover anywhere in the world. Be sure that the coverage purchased includes coverage for returning a sick person to the U.S. Covering the cost of returning a deceased person should also be included.

Major insurers who offer international insurance may also write accident and sickness insurance for groups, such as the employees of a firm that they are insuring for other coverages.

Aviation

Any person who is traveling abroad may represent an aviation exposure. It is common for business people to either fly with a friend who owns an airplane; to fly in an airplane owned by one of the firms doing business with the U.S. entity; or to even lease an aircraft with a pilot. The exposure is similar for any situation where an employee of the U.S. firm is in an airplane other than a regularly scheduled commercial aircraft. Insurance for any of these types of aviation exposures may have low limits, no coverage for passengers, or other indemnity restrictions or features that make the coverage on the airplane less than what the U.S. firm would have on a similar exposure in the U.S. or Canada.

Nonowned aviation coverage can be purchased by the U.S. firm. This coverage will give the U.S. firm the coverages and limits that they desire. If the loss is covered by the insurance carried on the nonowned aircraft, the nonowned aviation coverage does not respond. Should the insurance on the nonowned airplane be less than that provided by the nonowned aircraft aviation insurance contract, the nonowned aviation insuring agreements will provide the necessary protection.

Coverage for an owned aircraft must include the flight zones where the person intends to fly. In addition, there needs to be coverage should the plane get off course and fly into forbidden air space.

Related Article: Aircraft Insurance Coverage Analysis

Automobile

Vehicular travel in a foreign country is a virtual certainty. Whether traveling by bus, taxi, leased car or owned car, insurance coverage is subject to local insurance contracts and local law. Auto insurance in any foreign country may not be as broad as is commonly expected in the U.S. The laws in a given country may severely restrict coverage.

Example: A U.S. worker is injured when the taxi he is riding in collides with another car. That country's laws do not hold a taxicab operator or driver liable for injury to a passenger riding in the vehicle.

In Middle Eastern countries, there is no coverage if the vehicle is being operated by an intoxicated driver (since drinking is prohibited by some religious beliefs). There may also be no coverage if the wrong person is operating the vehicle. In countries such as South Korea, there is no coverage for passengers riding in a car. Liability exposures range from $5,000 in South Korea to unlimited in the United Kingdom. Foreign auto insurance may not provide coverages that are automatically insured by any U.S. auto policy. German laws regarding punishment of impaired driving are strict, with even first offenses often resulting in license revocation. French law requires proof of coverage be posted conspicuously on a vehicle (usually a windshield sticker) and such proof of insurance must be carried even on vehicles that are not in used (such as stored autos).

Because it is likely that auto coverage in a given foreign country may offer less coverage than generally accepted by auto provisions in the U.S., foreign nonowned auto coverage can be purchased. The foreign nonowned auto coverage will not respond if the coverage in the country where the accident occurs responds adequately to the loss. In the event that the insurance from the foreign country does an inadequate job, the foreign nonowned auto coverage will respond to the loss, applying the expected insurance contract provisions and limits. The foreign nonowned auto insurance will respond as though the loss occurred in the U.S., applying U.S. laws and the contract itself to the loss. However, such contracts will, regardless of wording, typically conform and comply with the law of the accident locale.

Foreign nonowned auto insurance lends a degree of certainty to the coverage provided for an auto accident in a foreign country. This coverage is also sometimes referred to as Difference in Conditions coverage (DIC) for automobiles.

A U.S. citizen traveling abroad and renting a car will need to purchase the insurance coverages that are available through the car rental agency. While this should be enough insurance to comply with the local regulatory agencies, it may not provide the coverages that the person is accustomed to having. Some credit cards may provide physical damage coverage on the rental unit.

Typically, an insured will buy excess auto coverage on either a stand-alone basis or as part of the firm's Difference In Conditions coverage. As the primary insurance is through the rental firm, the excess insurer and the primary insurer are most likely to be two different insurance companies. This is a normal situation whenever an insured is operating a nonowned auto and is typical for both U.S. and international nonowned auto loss exposures.

Related Article: Business Auto Available Endorsements and Their Uses – offers some information on the commercial endorsement (CA 01 21) available to add limited liability coverage for U.S. drivers while in specific parts of Mexico.

Note: This endorsement does NOT provide true Mexican auto coverage. Mexican law still requires that anyone who drives in Mexico must purchase insurance from a Mexico domiciled insurer.

Crime

International crime losses present similar exposures to those occurring in the U.S. Embezzlement, theft of computer data, employee theft and depositor's forgery are some of the crime exposures inherent in doing business in a foreign country. Loss of money and securities by such perils as fire, explosion and theft is another segment of the crime exposure chain. Transit and premises loss of property, money and securities completes the basic crime illustration. These coverage needs must be addressed in the appropriate foreign countries.

Crime forms promulgated by the Insurance Services Office, Inc. (ISO) provide coverage in the U.S., its possessions and Canada. Only their embezzlement form provides coverage for loss involving an employee who is in a foreign country for 90 days or less. Some insurers have filed their own crime forms that automatically provide coverage anywhere in the world. By endorsement, ISO forms can be amended to cover on a worldwide basis.

For information on insurers and brokers who have access to coverage for a variety of international crime exposures, refer to the section titled International Insurance in The Insurance Marketplace, published by The Rough Notes Company, Inc.

Directors and Officers

Claims alleging that the directors and officers of a firm failed to exercise their duties properly can arise from foreign operations as easily as from the U.S. It is important to determine whether U.S.-based directors and officers (D&O) insurance covers actions in foreign countries. If a U.S. firm owns a financial interest in a foreign affiliate, it is necessary to verify that the D&O will cover a particular exposure.

Employment Practices Liability

Sexual harassment, age discrimination, sex discrimination, and nationality discrimination are some of the claims that every U.S. employer faces. Any U.S.-based employee who is temporarily in a foreign country could conceivably bring a suit. Similar laws exist in some foreign countries. An employee traveling by auto in Europe could be in four countries in one day and could be subject to four different sets of employment practices laws. Many employers do not have the resources to learn all of the laws that apply to employment in each country that an employee will visit.

Employment practices liability coverage is available on a worldwide basis. The rates will be very low in countries where there is little exposure and higher where there is more exposure. The important feature is that the employer will have protection in the event an employee brings a claim.

Obviously, employers are vulnerable to legal actions triggered by how they, allegedly, treat employees. Here is a list of some employment practices that could result in lawsuit and judgment.

Downsizing. An employee is terminated by a firm that is reducing its payroll. For a number of reasons, the released employee is unable to secure work that pays the same wages as he or she was earning prior to the downsizing.

Managed Care. Managed care describes a situation where a health insurer or similar firm dictates the medical care a person is to receive. This care is often characterized as price driven as opposed to doctor driven. A claim can be presented by the person receiving the care. Such claims typically allege that he or she did not obtain proper treatment. Claims can also be presented by survivors who state that his or her family member would not have died had they been given proper care.

Re-engineering. Re-engineering typically involves giving a long-time employee a lesser job with the objective of having the employee quit. A common complaint under this situation is an allegation of age discrimination.

Early Retirement. With early retirement, the employee retires at an age earlier than had been planned. While the ex-employee will receive pension benefits at an earlier age, their value is significantly lower than what would have been received had the employee been allowed to continue working until traditional retirement age. Lawsuits usually allege that the ex-employee was forced to accept reduced pension benefits.

Sexual Harassment/Hostile Environment. One way for harassment to occur is when an employee believes that the work environment is hostile to his or her gender. An actionable situation may involve management's knowledge.

Example: Acme Tech Consultants routinely sends promising, female management candidates to a foreign locale that is run by an executive who is known to seek intimate favors from employees.

An actionable situation may occur without management's knowledge.

Example: Global Shippers hires minorities in its U.S. operations and then, in order to give them valuable, international management experience, assigns them to a foreign branch. Unknown to the U.S. execs, the local workers are intolerant of employees of different ethnicity. Typically, the foreign-assigned employees quit.

Companies that employ foreign nationals or that assign U.S. citizens to foreign countries for extended stays may be subject to very different employment laws than are found in the U.S. Many European countries have more restrictive laws on the termination of any employee. Vacation, sick leave and other policies may be dictated by law. Review the employment practices liability policy to determine whether coverage applies to foreign nationals and U.S. citizens on extended stays.

Note: Most EPLI policies are written specifically to comply with U.S. laws. Work with the EPLI carrier to see whether coverage for foreign operations can be provided. If not, work with an EPLI carrier that also provides international insurance coverages.

For information on insurers and brokers who have access to coverage for employment practices liability exposures, refer to the section titled Employment Practices Liability in The Insurance Marketplace, published by The Rough Notes Company, Inc.

Employee Benefit

Many insurance personnel consider employee benefit coverage to apply to claims resulting from the administration of employee benefits such as medical, life and disability income insurance. A particular danger is any allegation that an employer had not properly explained the coverage options available under the group insurance program.

Essentially, the same loss potential exists whether the firm is operating in the U.S. or any other country. Insurers are available to provide employee benefit plan liability coverage in foreign countries.

Employee benefit claims allege that the firm failed to properly administer the provisions of the firm's group health, disability income or similar programs. Claims that benefits were not properly explained are also common.

Example: An employee chose not to buy the group life insurance. Upon the employee’s death at age 34, his widow made a claim for the life insurance. She then sued the employer, arguing that the deceased worker would have bought the insurance if it had been thoroughly explained. It’s unlikely that coverage would be provided since it involved a decision not to accept coverage.

If a party alleges that an employee benefit program was not handled properly, employee benefit liability will respond to the claim.

Foreign health and welfare programs range from the Swedish cradle-to-grave programs to countries that have no governmental programs and, even worse, few insurers that can provide coverage for residents. If possible, appropriate foreign countries and foreign benefit plans need to be included in the U.S. firm's or affiliate's employee benefit liability program.

For information on insurers and brokers who have access to coverage for employee benefit plans liability exposures, refer to the section titled Employee Benefit Plans Liability in The Insurance Marketplace, published by The Rough Notes Company, Inc.

ERISA

ERISA (The 1976 Employee Retirement Income Security Act) is a U.S. law that mandates certain minimum requirements for health, pension and other employee welfare plans. U.S. employees who are eligible for ERISA covered plans are also covered while temporarily based overseas. Foreign employees may be subject to similar laws in their own countries.

Typical claims arise from a retirement program providing retirees with lower benefits than expected. The majority of claims involve fiduciary responsibilities such as fraud and mismanagement of funds. Most foreign countries have similar laws dealing with employer fiduciary responsibilities towards employee funds and benefit programs. With foreign affiliates or firms owned outright by the U.S. parent company, the problem of managing retirement funds can be complicated. Besides investment decisions, there is also the need to be able to distribute funds in various currencies. As a claim can arise from employees in any country where operations are conducted, fiduciary liability coverage should cover claims regardless of the country in which they originate or the country in which the suit is brought.

ERISA provides much of the regulation pertaining to the administration, funding, vesting and similar activities regarding United States pension and profit-sharing plans. Pension plans, profit sharing plans, 401k plans and individual retirement income plans are some of the names for the various types of programs available in the U.S.

Example: Konfused Akkountancy Ltd. hired General Investors Inc., a pension funding firm, and chose a funding vehicle that had poorer than average investment results--5% per year. An employee quit Konfused for a position with Incisive Informatics Corp. Incisive also used General Investors, but the funding vehicle it selected had averaged 20% growth for the past five years. The former employee claimed that Konfused mismanaged its pension fund. After hearing about the suit, many current Konfused employees brought similar mismanagement claims.

Coverage for losses as a consequence of retirement income funding and handling can be insured on an international basis.

Related Article: Satisfying ERISA Bond Requirements with Employee Theft Coverage – provides some information on the ERISA exposure.

Difference in Conditions

Difference in conditions (DIC) is the name for blanket overall coverage that has several meanings. When used in the U.S., DIC usually refers to broad peril property coverage overlying primary property insurance.

Example: An insured has named peril property coverage for the full value of its structures and equipment. The underlying property insurance is $100 million dollars. Difference in Conditions was written on a "risks of direct physical loss" over the $100 million. The DIC has a limit of $35 million with sublimits of $15 million for earthquake and $5 million of flood coverages.

Note: There is no coinsurance in DIC and it is common not to write it for the full value of the property covered.

On international property, Difference in Conditions coverage can also provide insurance on a broader perils basis than policies available in the foreign country. International insurance DIC may also be excess over auto, general liability and other coverages besides property.

Many insurers will write DIC only over property where they also write the underlying coverage. However, it is possible for an insurer to write a "naked DIC" (over another company's underlying coverage). How an insurer chooses to write either primary or excess coverage may depend upon a given country's insurance law. It typically has most to do with restrictions on the type of coverage a local insurer can provide or whether DIC programs are written on a non-admitted basis (and, therefore, not subject to a given country's rates, rules or forms regulations).

Example: The underlying insurance is written by ABC on an admitted basis using forms and rates approved by the foreign country's insurance regulators. Difference in Conditions coverage is provided by International ABC which is a non-admitted carrier. ABC owns International ABC.

Difference in limits coverage is typically included in Difference in Conditions coverage and some insurers refer to difference in limits as though it were a coverage separate from difference in conditions.

Insurance provided in a given foreign country may not cover all the exposures and benefits that are routinely provided in the U.S. To be sure that the proper coverage is provided regardless of where the loss may happen, a firm can buy Difference in Conditions (DIC) insurance. DIC insurance only responds to what is not paid by local insurance. The following may be helpful to consider as minimum excess protection recommended for any firm that is regularly doing business in a foreign country:

· Workers Compensation

· Auto

· General Liability

· Property

· Business Interruption

· Political Risks

· Ocean Marine

· Equipment Breakdown Protection

· Inland Marine

· Crime

Difference in Limits

Some insurers also write difference in limits (DIL) insurance for property. Difference in limits coverage responds in the event that primary insurance does not cover an entire loss. A typical scenario is where the international business owns real or personal property in a foreign country. To be a good citizen (or to comply with local mandates), the firm buys its property insurance locally. However, the available, local coverage has some provisions that make that coverage inadequate.

Example: Heavenly Harp Makers, Inc. buys property coverage for Plottsuvania Non-Life Inc. Plottsulvania law restricts its insurers to a maximum of $10,000,000 coverage for any single commercial structure. Heavenly Harp suffers a total loss to a major Plottsulvania plant. The building was worth $15,000,000. Fortunately, Heavenly also had a difference in limits policy. It paid for the $5,000,000 not covered by the foreign insurer's contract.

It is common for foreign insurers to have a 100% coinsurance clause. There may also be several deductibles that could apply to a loss. Currency devaluation or rampant inflation may cause the insured to suffer a coinsurance penalty after a loss. Difference in limits coverage will pay the difference between what the insurer pays after applying a coinsurance penalty and the full value of the entire loss.

Example: A U.S. firm values a foreign plant at $20,000,000. The plant is insured through a local insurer in that country for the full $20 million value. A fire burns the plant entirely to the ground. This total loss is paid for by the local insurer. However, the exchange rate has changed. Due to the difference in the values of the relative currencies, the payment received from the foreign-based insurer is worth $15,000,000 in U.S. dollars. The U.S. firm now has an uninsured loss of $5,000,000. The U.S. firm has difference in limits coverage of $10,000,000. The difference in limits insurer will pay the $5,000,000, thereby negating the need for a $5,000,000 write-off.

Property insurance in some countries may have several deductibles that apply to a given loss. Coverage for difference in limits will pay all of the loss after applying the largest deductible to the claim.

Kidnapping, Ransom and Extortion

Kidnapping, ransom and extortion may have a higher probability of happening in some foreign countries. Listed here are some exposures that a firm must make sure are addressed under its kidnap, ransom and extortion contract:

Worldwide Territory-With the amount of air travel that is now commonplace and the fact that aerial routes pass over many countries, no country should be excluded. Whenever possible, the policy's coverage territory should be worldwide. Territorial wording should be examined to see if hot spots are excluded.

Note: One very important consideration is whether coverage applies if a kidnapping occurs in a covered location, but the victim is then taken to an excluded location.

Family Members–Members of a covered employee's family should be included in the coverage.

Example: An executive from a U.S. electronics manufacturer was transferred for a year to assist with a new plant in another country. Two months after arriving, the executive received a phone call stating, "We have your children. For $2,000,000 you can have them back." If the executive’s family members are not listed on the policy, coverage would not extend to handling their ransom.

Kidnapping should be one of the insured perils.

Alleged kidnapping may also be covered.

Property extortion coverage should be considered. Property extortion involves the threat of property being damaged unless money is paid.

Detention–Holding or retaining people is detention. It is a fine line to differentiate between kidnapping and detention, but it needs to be determined if the form includes this source of loss.

Tampering–Altering or adding things into goods to make them unsafe is tampering. Whether it is for threatened, alleged, actual or accidental contamination, a policy should offer protection for such acts. Items that are common targets of tampering include cosmetics, tobacco, medicines, beverages and food.

All of these features should be included in kidnap and ransom coverage that applies on a worldwide basis.

Malicious Property Damage

Malicious property damage refers to acts of sabotage, terrorism, mutiny, insurrection, rebellion, revolution and usurped power. War and civil war perils can be added. There is no standardization of coverages among various insurers. While one carrier uses the term malicious property damage, it is possible that a given insurer will cover these same perils as part of their difference in conditions coverage or as part of their political risk coverage.

Property losses in foreign countries can be caused by perils not normally insured in the U.S. The following list is to aid in understanding some of the types of losses that can occur in a foreign county:

· War

· Civil war

· Revolution

· Usurped power

· Rebellion

· Sabotage

· Mutiny

· Insurrection

· Terrorism

· Workplace violence

Examples: Losses that are related to the above-listed exposures include:

· Business income loss due to kidnapping, ransom and extortion.

· A firm incurs restoration expenses to restore a firm's image after a workplace violence loss.

· A woman is working abroad and her husband is traveling with her. They are both severely injured in a terrorist ambush. Will their employer's health and workers compensation policies respond?

· The company needed to hire replacement employees after a terrorist killed a number of workers.

· Consultants were hired after a loss to aid in restoring a firm to its pre-loss image and work output.

· Salaries of the victims--are they covered?

· Death benefits need to be provided.

Letters Of Credit

Letters of credit are common in multinational business transactions.

Example: Acme Woodplanks, a U.S. firm, is making custom flooring for Global Furneshmart, an international interior decors firm. Acme wants to be sure it will receive payment for its product and Global wants to be sure it receives the flooring that it has ordered. What can they do? The firms agree to use a letter of credit.

Under a Letter of Credit, both the buyer and seller involve a bank in the transaction. The seller's bank determines that the buyer has enough funds to pay for the product. The buyer deposits (escrows) money in its bank account. In addition to checking on the buyer's ability to pay, the seller's bank also determines whether the buyer's bank is solvent.

At the appropriate time, the seller's bank verifies that the product is complete and ready to ship. The buyer's escrowed funds are then transferred into an account for the seller; however, the money is not released to the firm at this time. When the goods reach the buyer, the buyer and bank determine that they have received what they had ordered. At this time, the buyer's bank releases the funds to the seller's bank which in turn releases the money to the selling firm.

Credit Insurance

Credit insurance has been available in the U.S. for more than a century. Whether the seller and buyer are in one country, such as the U.S., or the transactions cross national boundaries, credit insurance functions in the same manner. Credit insurance protects against the danger of an insured's inability to collect accounts receivables. The standard coverage pays if the customer does meet its financial obligation. Some insurers' coverage extends to making payments when the collection of accounts receivables is slow.

When evaluating a firm's financial strength (creditworthiness), U.S. banks may not recognize receivables deposited in foreign banks. However, by purchasing credit insurance on the foreign account's receivables, many U.S. banks will recognize these assets. In such instances, credit insurance policy pays the U.S. firm if the foreign firm defaults, i.e., becomes insolvent. The credit insurer pays the entire amount (up to the limit of insurance) that the foreign firm owes the U.S. exporter. In addition, some credit insurers will pay if the foreign business payments are not made within a reasonable period of time. Some credit insurance forms will pay if the other country's government prevents the firm from paying the U.S. exporter.

About 5% of U.S. businesses use credit insurance. By contrast, it is estimated that nearly 50% of European firms use credit insurance. It is puzzling that more U.S. firms don't take advantage of credit insurance since it can be an effective, competitive business tool.

Example: A Midwest agricultural equipment manufacturer sold $1,000,000 worth of farm machinery to a South American company. The Midwest manufacturer wanted to be sure that they would be paid for the equipment and it suggested using a letter of credit. The South American buyer did not have the cash to put in the bank for a letter of credit, so it borrowed $1,000,000 at 30% annual interest for the year it would take to make and deliver the machinery. When it learned of the foreign partner's financial moves, the U.S. firm became concerned that the South American bank may become insolvent.

Using credit insurance negates the need for using letters of credit since an insurer, in effect, guarantees payment if the foreign firm defaults. By purchasing credit insurance, a U.S. firm may increase its ability to handle major transactions, while reducing their financial risk.

Liability Insurance

Liability insurance for foreign operations is available. Because the coverage may be substantially different from U.S. general liability forms, be sure to review forms to determine whether a suit can be brought in a foreign country or whether a claim must be made in the U.S. Most U.S. forms require that all lawsuits must be made and adjudicated in the United States. Insurers with international capabilities may be able to provide claims-made coverage in most countries.

It is important to consider that liability policies purchased for or in foreign countries may be claims-made or have a different coverage trigger than the occurrence form that is common in the U.S. Make sure that umbrella and/or excess policies properly dovetail with foreign coverages. Make sure that underlying limits requirements are met for all exposures to loss.

The following are some reasons for purchasing liability coverage for foreign countries exposures:

· A U.S. company employee could be detained or put in jail if a claim in that country goes unpaid.

· Access to a foreign market might be denied because of an outstanding, unpaid liability claim. This could result in losing money, time and future earnings. Inventories might be seized to pay for the claim.

· A foreign affiliate might need to pay for the loss due to the U.S. affiliate not paying for the claim. Should a foreign affiliate or customer be required to pay the loss owed by its U.S. partner, it could destroy their business relationship.

It is also possible that a U.S. firm would need to respond to a suit or award made in a foreign country. Under bilateral agreements, multinational agreements or similar laws, a foreign judgment can be enforced in the U.S. While the particular wording of these agreements may vary, their intention is very similar. A U.S. court will enforce a judgment made in another jurisdiction. General liability policies used in the U.S. and Canada usually do not cover suits that are not made in the U.S. or Canada.

AAIS Commercial Liability Coverage Analysis

ISO Commercial General Liability Coverage Forms Analysis

Foreign liability coverage is priced with consideration of the various legal environments that exist. Another advantage to the foreign liability coverage is that the local adjusters will be familiar with the applicable language and laws.

For information on insurers and brokers who have access to liability coverage for a variety of international exposures, refer to the section on International Insurance in The Insurance Marketplace, published by The Rough Notes Company, Inc.

Ocean Marine

Coverage on cargo going from the U.S. to a foreign country is provided by an ocean marine open cargo form that is endorsed by a warehouse-to-warehouse clause. Open cargo forms have no expiration date. Shipments during a given period of time (usually one month) are recorded. At the same time, the insured sends the premium and a report of values to the insurance carrier. Since goods do not travel by a single means of transportation, the warehouse-to-warehouse clause addresses that issue. A shipment might travel by truck or rail, be stored at dockside, shipped on an ocean freighter, sit on a dock after being unloaded, put on a truck, then a train and finally loaded onto a truck until it reaches its final destination. With the warehouse-to-warehouse clause on the open cargo form, coverage exists for all of these activities. The form covers a shipment from the time it leaves the exporter's warehouse until it arrives at the importer's warehouse.

War is not automatically included on the open cargo form. Coverage for the war risk is available. At any given time, there may be dozens of war zones in the world and the loss exposure in any given war zone is not static. Because mines from World War II remain in the English Channel, it is still considered a war zone (a very low exposure and, subsequently, a very low war rate). Due to the volatile nature of the war risk, rates for war coverage are established when the cargo is ready to go to sea.

An item shipped from the U.S. to another country is often worth significantly more at its destination. The export and import tariffs paid, shipping costs and related items raise its value. This increased value needs to be recognized when establishing the amount of insurance at the time the cargo is shipped. A common "load" on a shipment is 25% of the cost of the item. Some exporters will even increase the value by 50% to recognize the true change in value.

Most firms that ship materials or items by ocean freighters will have their own open cargo policy. These firms also are familiar with the filings, forms, tariffs, and shipping companies that must be handled.

Ownership of a cargo can change several times from the time it is shipped until it is delivered to a warehouse. As the cargo is out of the control of the owners, the chance of risk does not change depending upon who owns it. Therefore, open cargo underwriters are very willing to pay whoever owns the damaged cargo at the time of the loss.

A smaller firm that is just starting to ship goods to foreign countries might use a freight forwarder or expeditor. These firms can perform many services for the shipper. Handling necessary paperwork to permit shipment and acceptance of the item at the foreign nation is one of the services forwarders or expeditors can perform. Packing an item for ocean shipping requires skill and this task can also be done by the freight forwarder or expeditor.

Further, a freight forwarder or expeditor can insure the shipper's goods under the freight forwarder or expeditor's own open cargo policy. The expeditor or freight forwarder has an open cargo insurance contract for the very purpose of being able to provide open cargo insurance to their customers.

For information on insurers and brokers who have access to coverage for marine cargo exposures, refer to the section on Marine Cargo Insurance in The Insurance Marketplace, published by The Rough Notes Company, Inc.

Political Risk Insurance

Any firm operating in a foreign country is vulnerable to financial loss due to the actions of the foreign government.

Example Thisplace Motors, Inc. has a major market in Thatplace. To increase sales and reduce costs, Thisplace builds an auto manufacturing plant in Thatplace. Thisplace, on the advice of its risk manager, insures the plant with a five-year political risk policy. Three years after the plant was opened, a radical political party is voted in and Thatplace's plant is seized. Thisplace's Political Risk insurance paid out the value of the plant.

Example: A U.S. communications firm was providing services to a foreign firm. Due to political pressure from the foreign government, the foreign firm broke its contract with the U.S. business. The communications firm wrote-off a loss of nearly $2 million.

The type of loss occurring in the above example is called contract frustration. This potentially substantial exposure is covered by political risk insurance. The coverage may be written to apply to a specific country. It can also be written to cover a business on a worldwide basis.

This is a list of some of the causes of loss that are insured by a political risk insurance policy:

Wrongful calling of guarantee	Calling of a guarantee due to a political act	War
Third party blockade	Selective discrimination	Forced project relocation
Forced divestiture	Forced abandonment	Currency inconvertibility
Contract frustration	Civil war and insurrection (CW&I)	Deprivation
Expropriatory conduct	Political violence	Non-repossession

The political situation in a given country may easily be the source of property loss, especially actions by a national government.

Example: Some custom, color printing equipment was ready for delivery to a customer in another country. Just after the equipment was unloaded at the foreign port, government officials, fearing that it might be used to publish anti-government materials, confiscated it.

A good international insurance underwriter will be familiar with the political risk exposures in most countries. Here are some other types of government-caused losses:

· Exchange rate drastically affected due to the government's actions

· Extorting the firm's assets

· Civil war

· Insurrection

· Operating licenses revoked

· Nationalizing an industry

Political risk insurance can provide protection against loss involving any or all of the above situations. The preferred covered territory is worldwide (though not always possible).

For information on insurers and brokers who have access to coverage for political exposures, refer to the section on Political Risk Insurance in The Insurance Marketplace, published by The Rough Notes Company, Inc.

Recall

Products recall insurance deals with a firm's expense to have its customers and suppliers cease use of a defective product. Often a recall involves requiring customers to return the defective product and then replacing the items. Some of the expenses associated with a recall are:

· Advertising expense. This will include customers returning the defective product and saving the reputation of the firm.

· Costs of removing an item from retailer shelves.

· The value of the items that must be destroyed.

· Costs of restocking wholesalers' and retailers' shelves.

· Cost of doing emergency production work to quickly replace all of the goods that had to be destroyed.

Some recall insurance covers only the cost associated with the customers’ returned items.

A product may be used in several countries even though its original distribution was limited to one or two countries. There is no way to control where customers will take and use a product. Because of this, recall or products recall coverage should provide coverage on a multinational basis.

Property and Time Element Exposures

Fixed location property exposures in a foreign country require special attention. Here are a number of critical areas of consideration.

Business Income

Business income or time element may pose enormous risk for companies with multinational transactions or operations.

Example: A U.S. firm has plants in many countries. A plant located in Asia is substantially damaged by fire. The U.S. firm quickly shifts the destroyed plant's production to a South American facility and they also decide to lock up and not rebuild the damaged plant. Because of their flexibility, the firm does not appear to have suffered a significant business interruption loss. However, due to the high unemployment rate in the Asian country where the loss occurred, the country requires the U.S. firm to pay wages to all of the workers who lost their jobs. The wages are to be paid for the length of time that it would have taken to rebuild the plant.

This is not a normal loss exposure but is one that the U.S. firm's insurance program needs to be ready to address. This illustrates the importance of working with an underwriter who is familiar with local conditions, rules and coverages.

Interdependent Locations

Coverages needed to insure trade shows, warehouses, offices and manufacturing locations will require diligent planning.

Example: A European manufacturer is discussing an upcoming, major project with its risk manager. They explain how their main plant will ship parts for a new product line from its European facility to a sister plant in the Pacific Rim. The Asian plant will then incorporate those parts into the final product. The risk manager says that he has some concerns about how to deal with business interruptions. He says that a study must be taken as to the possible impact that could be caused by losses at the European plant, the Pacific Rim plant and/or to property while it is being shipped to the Asian plant.

In this case, coverage for loss due to damage to the recipient and contributing plant needs to be in force.

Transit

Are goods being transported from one of an insured's plants to another plant or distribution warehouse? Would a loss to one of the plants cause another location to reduce its outputs or shut down entirely?

Suppliers

Are critical parts coming from a single supplier? If the single supplier cannot furnish parts due to a loss, would the event trigger a slowdown or interruption in your insured's operations?

Example: A computer parts manufacturer in a Southeast Asian country was struck and severely damaged by hurricane winds. The damage interrupted its operations for eight months. The computer company was the sole supplier for a U.S. firm that, because of their dependent relationship, was unable to ship any computer components for eight months. The U.S. firm suffered a major loss without any direct damage.

Obviously companies with remote partners must consider having their own business income coverage. The U.S. firm should have contributing property business income to protect against the loss caused by damage at the Pacific Rim country.

Recipient Property

A loss caused by damage to a key customer should also be a consideration.

Example: A heavy equipment manufacturer has just completed building some customized mega rock crusher for an overseas customer. Before delivery can be arranged, the overseas customer notifies the manufacturer that they have suffered a major fire. The customer's operations have ceased and it will take nearly a year before they will be back in operation. They then cancel the custom equipment order.

Contributing Property

Subcontractors can sustain a loss due to perils such as fire, explosion and political risk. If the subcontractor's loss will result in a loss to your insured, there is a need to insure this exposure.

The U.S. name for coverage that could help reimburse a company for such lost business due to either Recipient or Contributing Property is Business Income from Dependent Properties.

Political Risk

Other reasons that the customer cannot accept delivery are that it has sustained financial reversals or political risk. A loss due to political risk, such as the government nationalizing the customer’s plant or operation, can be insured. More information can be found in this article's earlier section on this topic.

Affiliates

Some U.S. firms have affiliates in a foreign country. Typically, the affiliate will buy its property insurance in the country where it is located. Sometimes, the affiliate's property insurance will not have the same level of protection as provided by U.S. insurance. The insurance on the affiliate will pay in the currency of the country in which it is located. Special arrangements will need to be made if the U.S. company wishes to receive insurance proceeds in U.S. dollars rather than the applicable country's currency. While one may be able to place all of the coverages with one international insurer, that is not always possible. Review all coverages to make sure that underlying limits and coverage grants are adequate for umbrella, excess and difference in limits or difference in conditions coverages. Look for language that may exclude or limit foreign operations that are not modified by endorsement or a bridge policy that picks up gaps in coverage.

Royalties

Royalties are often used as a method of payment in return for permission to sell or use a product. In a typical arrangement, firm A pays a royalty for the right to use firm B's ideas, patents, machines or some other item of value. A royalty can be calculated in many ways including use of a flat charge or a percentage of sales. An affiliate might be paying a royalty to the U.S. firm. Therefore, a loss to the affiliate may trigger a loss of royalty income. In another royalty arrangement, an affiliate may pay a firm other than the U.S. business for the use of some idea or process. The royalty payment may have to continue even while the firm suffers a business interruption.

Businesses may not be able to purchase local coverage for more than the basic causes of loss (fire, wind, and hail). Actual cash value and low deductibles may be the norm. If correct limits, risks of direct physical loss coverage and replacement cost coverages are not available, the U.S. firm will want to look to its difference in conditions coverage to provide the necessary protection.

Computers/Electronic Data Processing

Computer coverage, of course, will include coverage on hardware, media and data. Computer security may be an issue.

Example: Company A loses market share for its software product after some hackers breach their system and steal coding that allows cheaper, duplicate products.

While there are certainly risk management techniques that can apply to this potential loss exposure, there is no guarantee that the risk management techniques will be successful. This is the reason behind the recommendation to consider insuring against losses caused by hacking with computer security coverage.

Another source of computer-related loss could be triggered by a "brown out." "Brown outs" typically occur when demand for electricity outstrips the ability of the utility to supply power. There is electrical power, but it is at a reduced level. Storms often cut off the supply of electricity coming from one direction. The electrical company's power grid may be arranged in such a way so that when electricity cannot come from one direction, it will come from another. When electricity comes in from the other direction a power surge may occur. A computer can be damaged by either a "brown out" or a power surge. Sudden drops in power may occur in countries with mandatory or frequent blackouts. In these countries either the equipment or fuel is inadequate to provide stable electrical service. Good computer policies cover losses caused by off-premises power interruption. Below-average computer insurance contracts do not provide any coverage for off-premises power interruption. Computer coverage, including off-premises power interruption and computer security, is needed for computers in foreign countries.

All businesses should back up data and store the backup off premises. However, if backups are not made or are made infrequently, the missing information will need to be recreated. Electronic Data Processing Coverage is easily available for U.S. firms.

A firm can sustain a loss if its accounts receivables are damaged and billing is interrupted. This exposure is the same whether U.S. records or records of a business located in a foreign country are ruined. Should a foreign customer have accounts receivables, insuring them should be considered. Regular accounts receivables insurance responds for losses due to damage by insured peril. In foreign countries, notably Europe, insurance is also available should firms default on paying the money they owe a firm. Sometimes this coverage is also referred to as business credit insurance. It is worthwhile to consider this insurance.

Product Research

Ideas may take years of development before they become products. For some firms, it may make sense to insure for the loss of product research.

Transit

Transit exposures can include several exposures. Shipments can be sent by air, truck, water or rail. In the ocean marine section, there is material regarding how to insure these exposures. Transportation coverage should also be considered.

Related Article: AAIS Transportation Coverage Forms

Exhibitions

Typically, property at exhibitions is not automatically covered by contracts that provide off-premises coverage. Coverage for exhibitions may need to be added. At many exhibitions, the exhibitors do not set up their own displays. The display is shipped to a firm that does the set up and tear down for all of the exhibitors at a given exhibition hall. This firm will store a display prior to set up and again after the show is over. Besides covering an exhibition display while it is being used, consider covering the exposure of the display while it is in the custody of the firm doing the set up and tear down for the exhibition.

Salespersons' Samples

Salespersons' samples may need to be insured.

Time Element

Foreign businesses are subject to the same exposures to loss of income and extra expense as U.S. firms. In foreign operations there may be a greater interdependency between different locations of the same firm or different firms. If a loss at firm A will cause a slowdown or shutdown at firm B, B's loss of income insurance needs to be arranged so that it would pay in the event of this contingency.

Laws

Laws create unique, often unanticipated loss exposures.

Example: While on the loading dock ready to be shipped out, an entire container of clocks was totally destroyed when a loading crane’s cable snapped and the container crashed onto the dock. Despite the fact that there was no value left to the shipment, the country where the clocks were made demanded its export tariff.

Work with an underwriter who understands the local laws.

Foreign Property Insurance

When buying property insurance locally, it is possible to do so via insurers that also operate in the U.S. Zurich and Chubb are examples of insurers that operate in the U.S. and also sell insurance on an admitted basis in dozens of foreign countries. It is also possible to encounter an insurer with a name that is not familiar to you but owns one or more U.S. insurers. The last categories of insurer are those that have no ties to the U.S. insurance market.

One method of purchasing property insurance is to use a broker in the country where the assets are located. Expect policy provisions to differ from those commonly used in the U.S. One example of a somewhat common difference is that in many countries the insured perils are not "risk of direct physical loss." No coverage for theft of property in the open is another clause that can be encountered. Actual cash value rather than replacement cost is the property loss valuation used by different countries. Coverage on a 100% coinsurance basis is the only way that property insurance is written in several countries.

Foreign companies and brokers often are unwilling to broaden covered perils, decrease coinsurance or otherwise modify the policy. This is why a customary insuring procedure is to buy difference in conditions (DIC) coverage over the property insurance purchased in a foreign nation. The property insurance is written on an admitted basis, thereby subjecting the coverage to the insurance regulations of a particular nation. By contrast, DIC is typically written on a non-admitted basis, thereby allowing it to provide coverage and provisions that a given country's insurance regulators do not allow.

Foreign insurance may lack coverages that American businesses take for granted. Usually their forms do not provide replacement cost coverage on the same basis that is common in the U.S. For instance, should the U.S. firm need to import material or machines into the foreign country to replace what was damaged, the foreign company would impose tariffs on the items. Local insurance will probably not cover these tariffs. In an actual loss, a theft loss was not covered as the insurer stated that they did not cover mysterious disappearance. Foreign property insurance probably will not be as broad as standard U.S. commercial property forms.

Some U.S. firms that own property or lease property in foreign countries will buy just minimal coverage from a local insurer in the foreign country. These businesses that own the property in a foreign country will buy a form of blanket property insurance (DIC) that will cover property in any country except the U.S. and Canada. DIC will pay whatever part of the loss that is not covered by the local, foreign insurer. This policy will pay U.S. dollars to the firm and pay the money in the U.S. Using this avenue, the U.S. firm will receive U.S. dollars for a loss to fixed location property in a foreign country.

Special care is necessary when the U.S. firm wishes to be paid in U.S. dollars for the loss of a plant in the foreign country. More than one country will not allow the insurance loss dollar to be taken out of the country. There is no one good solution to this dilemma. Some firms will buy the smallest amount of coverage and the most limited perils from the local foreign insurer. Most of the losses will not be insured by the local insurance company. Hence, the DIC will pay for the loss and, of course, pay in U.S. dollars.

For information on insurers and brokers who have access to coverage for international property exposures, refer to the section on International Insurance in The Insurance Marketplace, published by The Rough Notes Company, Inc.

Workers Compensation

Workers Compensation (WC) coverage can be used to respond to two different situations:

1. U.S. employees who are temporarily assigned to foreign locales

2. Permanent, foreign employees on the payroll of U.S. firms.

Firms that send an employee to a convention or exposition when the employee will be home in less than three months can handle WC coverage by adding a foreign coverage endorsement to the U.S. workers compensation contract. While there is no national NCCI Workers Compensation endorsement to cover U.S. workers while working temporarily in foreign countries, a few states like Wisconsin (WC 48 06 03 Foreign Coverage Endorsement) do have limited foreign coverage. Often this coverage only applies to U.S. or Canadian workers who are deployed outside these two countries for no more than 90 days at a time. Most endorsements will provide workers compensation benefits based upon those that apply in the state where the employee normally works. The endorsements often provide some coverages beyond normal workers compensation benefits. Losses due to disease and any endemic disease are regularly covered. Cholera, malaria, polio, hepatitis and tuberculosis are prevalent in many countries. Foreign endorsements do not include coverage for employees who are hired in other countries. Insurance carriers with international arms may have their own endorsements to cover this temporary exposure. Read the foreign endorsement carefully and work with the insured to clarify when coverage for employees ends.

Voluntary workers compensation should be included in the coverage. It is possible for an employee to be entitled to benefits of a country's workers compensation that are better than what the U.S. provides. Coverage for the increased benefits is often addressed by the voluntary workers compensation clause of the foreign endorsement.

Excess repatriation expenses cover the cost to return an injured worker to the U.S. for treatment in this country. Chartered planes and helicopters to remove employees from remote areas can be expensive.

Employers' employee coverage is provided for any claim brought outside the U.S. and Canada.

Coverage is needed for non-working hours. A way of covering this exposure is with a sickness and accident policy.

For permanent foreign exposures, the usual procedure is to buy workers compensation from or for the country where the worker will be permanently stationed.

Note: Losses in the foreign country will not affect the firm's U.S. workers compensation experience rating formula.

Employers liability coverage may need to be endorsed so that it applies on a worldwide basis.

Coverage for the U.S. citizen hired in the U.S. but working in a foreign country can be provided by using the National Council on Compensation Insurance's (NCCI) Form WC 00 03 11, Workers Compensation Voluntary Compensation. This endorsement will provide the benefits from the employee's home state to the injured worker. There is no coverage for endemic diseases or repatriation expense.

An endemic disease is one that is peculiar to a particular country. Repatriation expense is the expense above normal transportation expense to transport an injured, sick or deceased employee back to the United States.

There is no standard "Voluntary Workers Compensation Endorsement." A number of insurers have a foreign voluntary workers compensation endorsement that is essentially the NCCI's voluntary workers compensation endorsement, WC 00 03 11, with repatriation and endemic disease coverage added. Some insurers have a specific limit applying to repatriation expenses while others do not have any specific limit applying to it. It is recommended to, whenever possible, not have any limit applying to repatriation expense coverage.

Captives and Risk Retention

Companies are using larger self-insured retention plans to lower their insurance costs. It is not uncommon to see companies electing to "self insure" the first million of property or property damage liability claims. However, there are other tools companies use to reduce the cost of insurance.

Captive refers to a situation where an insured owns and is protected by its own insurance company. One reason for forming the captive insurer is to get insurance at an affordable rate. Another is to be able to get insurance at all.

Captive insurers can be owned by the parent-company, or owned by another business that rents out space within the captive, or a captive insurer can be a partnership between many companies. IRS tax laws are quite strict regarding the deductibility of captive insurance premiums and the lack of available deductions is one reason why many companies do not form captives. Most captives are established on islands or in states that have passed captive enabling legislation (such as Bermuda, Bahamas, The Caymans, Panama, Vermont, Colorado).

Markets

There are many international insurance companies that can assist in acquiring coverage for firms operating in more than one country. As is the case with dealing with any insurer, handling an international account calls for using professionalism, knowledge and cooperation. Here is an example that demonstrates characteristics of the international markets.

Example: Open cargo was shipped from Milwaukee to Italy. When the shipment arrived, it was alleged that the entire shipment was damaged. Over 80 tons of pressure would have been required to bend the items, a highly unlikely event. The Milwaukee firm shipping the cargo employed an engineer with a current passport, who spoke Italian, and had the expertise to recognize any cargo damage. The company wanted to send this employee to inspect the shipment. Within two hours after calling the insurer, arrangements were made for an adjuster, working out of France, to meet the engineer and buyer at the dockside in Italy the next day.

There are several ways to access an international market. If an agent represents a company that provides international coverage, the agent already has access to that insurer’s international market. Typically, a company that operates internationally requires an agent to be licensed with them in order to have access to their international market. However, some companies may offer agents access via arrangements with specially-authorized company agents who act as brokers for international business. Another avenue is to find insurers who provide, underwrite and accept applications for international business from any qualified agent. Also, there are many specialty brokerages with access to the international market.

Insurers and specialists who provide access to international markets must deliver good service for their insureds which are often the largest businesses in the world. Incomplete applications may be ignored as these markets will not call an agent to secure missing information. Therefore, an incomplete application will not have the opportunity to be underwritten.

Some international insurers have offices in every country where they sell insurance. Others are U.S.-based and provide coverage through agreements with affiliates which, typically, are not owned by the U.S. insurer. Some insurance agents prefer to work with an insurer that has its own offices in the foreign countries. Affiliate arrangements can be as effective as long as the U.S. underwriter and the affiliate have an open and candid channel of communication.

The international insurance market is growing. Many insurers have international facilities. Basic international insurance is very similar to coverages that are written in the U.S. A broad difference in conditions policy plus health insurance that includes endemic diseases is a sound base on which to build the insurance program for the client that is doing business in foreign countries.

More global insurers are changing and expanding their markets due to political and legal changes such as those created by England and the European Union’s Brexit Negotiations and the EU’s General Data Privacy Regulations. Both are influencing the shape of markets as well as location of operations. For instance, Lloyds is establishing more operations outside of England to better serve its EU clients. Anticipated restrictions that are likely to result from Britain leaving the EU is already causing shifts, with other countries, particularly Germany, becoming a more dominant market.

Emerging Consideration

Increasingly, companies that operate beyond U.S. borders should be more concerned with cyber security and cyber liability. Different countries have operating and legal environments that are substantially different than the U.S. Operating in a global market creates more digital loss exposures from hackers as well as greater liability due to more stringent laws regarding protecting private data of customers, business partners and vendors.