With lifting trade barriers and the continued growth of U.S. exports, companies are realizing opportunities to expand their reach into the global market. But with these opportunities comes a new world of risks. Companies need to maximize growth while minimizing their exposure to financial loss, which can be exacerbated by legal, linguistic, cultural, economic and political differences.
Exposure to these international risks does not require a company to have an international location. Employees traveling abroad or simply sending faxes or other correspondence overseas can create an international exposure for a company.
Regardless of the degree of the exposure, a company may be uninsured or underinsured with a domestic insurance policy. Even the worldwide endorsement used by many U.S. insurers can leave gaps in your coverage.
Companies should thoroughly review their current insurance programs and make sure prospective carriers fully understand the nuances of the global market and provide a broad range of products and services to address the unique exposures of international business.
Four key areas where due diligence should be performed before going global include the following.
Underwriting expertise
Does the insurance carrier understand the local market? This includes legal jurisdictions, economic climate and the language.
Various countries have unique nuances and insurance requirements that range from environmental impairment in Germany to natural catastrophe pools throughout Europe. The insurance carrier should also be able to keep you abreast of any major changes in the legal and economic climate.
Specialized programs
The foreign landscape opens a box of exposures rarely considered.
Currency devaluation, political risk and tax liability are all issues. An insurance carrier should be able to offer a wide array of products to meet your needs as overseas expansion occurs. Ideally, a company should be able to grow with their insurance carrier from the early beginnings in international operations to full manufacturing and service operations based overseas.
A routine overseas business trip may not be as simple as it first appears. As an employer, you must consider workers’ compensation issues, automobile liability and property theft exposures. Purchasing these lines of coverage individually may be costly, but many insurance carriers can package these programs to ensure adequacy in coverage along several lines.
This simple package may later require local admitted insurance policies (those recognized and required by local countries) as your company grows. This requires an insurance carrier that understands the local insurance market and legal requirements imposed on business owners.
Global network
While it is important that your insurance partner provide a wide array of international insurance products, it is equally important that they support their products with an experienced global network of service providers.
Your carrier should provide local claims handling ability and medical assistance programs to help in the event of an injury or sickness overseas. Examples of incidents that might require global services include:
- A business traveler has a car accident and the doctor does not speak English
- A business traveler is robbed and needs help re-establishing identification
- A business traveler gets arrested — and jailed — for a seemingly minor infraction
Financial strength
In 2003, nearly 25 insurers went insolvent. In addition, many carriers left the international insurance arena, or decided to reduce their global services, which adversely affected the value of their product.
Carriers should have the financial stability and commitment to fulfill their obligations and be a long-term competitor in the international market. It is crucial that the carrier have the financial strength to make good on its promise to pay and be there in the hour of need. Common insurance carrier financial strength rating benchmarks are provided by A.M. Best, Standard & Poor’s and Moody’s.
John Sence has more than 10 years of experience in the insurance industry. Since joining Schiff, Kreidler-Shell, the Midwest’s leading independent insurance agency, he has developed key areas of expertise in international insurance and construction. For a review of your current insurance program, contact Sence at (513) 977-3198 or [email protected].
