How To Manage Risk Worldwide

by Arthur Bruinooge

 Insurance should travel with you. It doesn't matter whether you are a manufacturer, accountant, or engineer; if your products, services, or employees travel outside the United States or Canada, it is important for you to have an insurance program that travels with them. Most domestic insurance policies fail to make the trip, creating potential for liabilities that the business and business traveler unknowingly assume. Employee injuries and illnesses, premises and producer liability, automobile accidents, exhibition and transportation losses top the long list of foreign claims limited or excluded by domestic insurance policies.

Securing coverage for many export exposures is usually not difficult or expensive. An ocean cargo or international transportation policy adequately insures your transportation risks at competitive rates significantly lower than what a freight forwarder would charge. An export package policy provides coverage for foreign liability, foreign voluntary worker's compensation and excess foreign automobile liability at minimum annual premiums starting at $2,500. Manufacturers who combine domestic and international insurance exposures under one program through an international insurance carrier usually reduce their insurance premiums by splitting their domestic and foreign sales and taking advantage of significantly lower foreign product liability rates.

As soon as a company establishes assets and operations in a foreign country, insurance and risk management become much more complex. Unfortunately many businesses rely on their overseas executives, managers, or joint venture partners to handle the foreign insurance exposures. This can be a costly mistake. In most other countries, local admitted insurance carriers do not offer the broad property and liability insurance we carry in the United States. Gaps in coverage, inadequate limits and insurance company insolvency's top this list of limited or excluded claims.

A non-admitted master program does not have to conform to local insurance restrictions, limitations, and regulations, and is usually a better risk management solution for covering assets and operations in a foreign country. These policies are written in English, using familiar terms, conditions, and insuring agreements, and they provide centralized risk management solution for covering assets and operations in a foreign country. Unfortunately, not all countries permit non-admitted insurance, and local tax codes may not allow the premiums to be deductible.

A controlled master program is the best risk management solution if country insurance regulations or tax considerations require local admitted insurance. Indonesia, Japan, and Korea are just a few of the countries that prohibit non-admitted insurance. Under a controlled program, the same insurer covers all foreign exposures under both admitted and non-admitted insurance policies. A "Difference in Conditions" policy (DIC) fills the coverage gaps created by the exclusions and limitations that plague foreign admitted policies. It may also insure the political risk exposures affecting foreign assets and employees. DIC policies provide excess coverage and wrap around the various admitted policies, bringing the worldwide insurance program to a standardized level of coverage and limits that fits the needs of the policyholder. This type of program also offers tax advantages, centralized risk management control, reduced premiums due to economics of scale, and effective, efficient loss control and claims handling.

Whether you are a new company exporting your product or an established multinational firm, getting paid for your product or service is always a concern, Securing payment in advance or confirmed letters of credit are acceptable ways to handle that risk. However, competition, the desire to increase foreign sales, the high costs of letters of credit, and the demands of repeat customers may force you to offer open account terms. Consider adding export credit insurance to your insurance program, which reduces or eliminates your risk of not getting paid due to commercial or political reasons. Coverage for short-term credit (up to 180 days) and medium-term credit (up to 5 years) is available through the Export Import Bank of the United States and a few private insurance carriers.

A number of insurance companies claim to provide worldwide coverage but very few offer broad enough coverage and have the ability to service it. Make sure you look not only at the cost and coverage, but also at the company's financial strength, capacity to handle your risk management needs, overseas network and the ability to provide claims and loss control services as well as engineering, legal, and other related services.