By Jennet Lewis ,
Senior Vice President, Marsh Multinational
03/03/2023 · 4-minute read
The global insurance requirements of international companies operating across diverse countries and regulatory regimes are undeniably complex. A tendency to overlook these variances and implement standard insurance programs across the board can leave subsidiaries with significant exposures, both in terms of uninsured risk and breaches of regulatory compliance that could lead to potential fines.
With suitable preparation, however, multinational organizations can improve the effectiveness of cross-border insurance policies by building programs that are operationally suitable and compliant to local regulations while remaining cost-efficient.
As cross-border collaborations expand and more organizations do business overseas, there are three major considerations when it comes to planning global insurance renewals.
Not only do local requirements typically vary in the different countries that global businesses tend to operate, but some countries have sector-specific regulations that organizations need to be aware of. It is therefore critical for multinational organizations to examine in detail the insurance programs of their local operations — both in the form of global programs and stand-alone policies — to determine whether they are compliant with local requirements. For example, some countries mandate companies to purchase certain policies, such as workers’ compensation or employment practices liability. Further, a company that goes through a lot of tenders in both the private and state sectors may be required to demonstrate local liability or professional indemnity cover. Other policies may not be required and the decision to retain them should be based on specific risk, exposure, or business needs.
Equally, a local operation may need more cover than can be provided by a one-size-fits-all policy purchased by the corporate entity. Relying on a master policy can be particularly problematic since claims are typically paid to the corporate entity, and any funds transferred to the local subsidiary may be subject to taxes, if they are even allowed. It is often advisable for multinational organizations to consider a local policy that provides adequate coverage — on a subsidiary-by-subsidiary basis — and allows for claims to be paid directly to the local entity.
A financial interest clause typically provides express protection to a parent company against financial damage from a local subsidiary’s losses when the subsidiary cannot be directly insured by the global insurance company’s master policy. However, there are a number of reasons why multinationals and their subsidiaries should not overly rely on such a clause. Typically, the financial interest clause will only reimburse the corporate organization. The transfer of any payout to a local subsidiary may incur taxes and may also trigger audits that could lead to fines. Further, while financial interest clauses have responded to date, they have not been rigorously tested in a court of law and are often considered to be a ‘grey area’ of insurance coverage. Let’s take the case of a company that experienced a loss and is being challenged by its insurer to prove financial damage to the master policyholder. If the company is unable to unequivocally do so, this could theoretically result in the claim being rejected, and both the subsidiary and parent company being exposed to the full loss.
We regularly see instances where a subsidiary’s local cover has duplicated aspects of the global insurance program. Using a broker who has visibility over all your insurance arrangements worldwide can help minimize the risk of costly doubling up of cover and any potential issues with two different insurers providing the same coverage which can lead to a dispute in the case of a claim. Duplication can also be averted by establishing a common renewal date for all the programs of a company, and carry out an international audit each year prior to that date. This exercise can also help you leverage economies of scale by identifying one or two insurers that can become partner carriers and help streamline the insurance purchase, for example, by underwriting all your workers’ compensation or motor policies.
It is critical for multinational organizations to regularly reevaluate the way your global and international insurance programs are structured, with this exercise becoming an integral part of the renewal planning process. But it’s also important to keep in mind that this will typically take time, underscoring the importance of engaging your multinational specialist at your broker early and working with them to review, and if necessary redesign or restructure, your arrangements well in advance of the renewal placements.
Typically, a full review of your global programs should be carried out every three years at a minimum, allowing you and your insurance advisor to determine whether your multinational program remains ‘fit for purpose’ and look for areas of improvement in maximizing your insurance spend.