One of the consequences of the financial downturn in Ireland was the increased number of Irish based companies who were forced to pursue opportunities in markets outside of Ireland and are now multinational companies.
When addressing multinational insurance programmes, global companies must consider the options available to them and the obstacles they face, through a detailed assessment of cross-border risks in the context of expansion of regulatory regimes and emerging markets.
A multinational is a company of any size that has assets and/or exposure outside its home country. A multinational’s exposures may initially be identified by asking the following questions; does it have directors, officers or employees overseas, own or rent foreign locations or warehouses, export abroad, have computer systems/infrastructure overseas?
There are 140,000 global multinational companies in the world. Of these companies 81% operate in only two countries, 17% operate in three to ten countries and only 2% have geographical distribution of over ten countries.
In the past, it was widely believed that having one policy in force for a parent company would be sufficient to cover subsidiaries worldwide. However this is not always the case, for example, if a non-indemnified claim is made against a director in a country where non-admitted insurance is not allowed. There are potential issues around who can pay the claim, and what are the regulatory/tax implications for the company or the director.
It is important that the multinational be aware of the potential pitfalls lack of local coverage can create in the areas of compliance, claims, income tax, proof of insurance and coverage.
In order for a multinational to understand its exposure it needs to consider its:
- Presence in the local territory,
- Whether it is locally listed on a stock exchange,
- Where its directors are resident.
It is worth noting that certain jurisdictions may require specific terms and conditions to be included in insurance policies in order to comply with local regulatory requirements. Also, the local operation may require specific covers to be included to ensure it is adequately protected.
Regulatory Authorities may stipulate coverage is purchased only from a locally licensed carrier or may prohibit a local operation from having its parent company’s policy pay claims. Potentially local laws, customs and regulations may not be effectively addressed or even considered when drafting a parent company’s policy.
It has become commonplace for counterparties or government entities to require evidence that coverage has been obtained locally as part of contractual negotiations. Reliance on a parent company policy may lead to breach of contractual covenants and may trigger commercial, contractual or reputational consequences.
Potentially a non-compliant insurance programme can lead to potential difficulties with local tax authorities. The multinational parent may incur a tax liability in its home country if the global policy cannot respond by paying the claim locally and must instead pay the parent company. Also, local subsidiaries may incur a tax liability if the parent needs to make a capital contribution to the local subsidiary.
It is evident that a multinational can incur additional unnecessary costs by virtue of simply crossing borders and expanding its business. In an effort to address these concerns it may be preferable for the company to have a multinational programme in force.
There is no ‘one size fits all’ structure for a multinational programme; it should reflect the particular multinational’s preferences, goals and situations. It must be adaptable year to year as the company’s needs evolve and the overall business climate inevitably changes.
There are three ways in which a multinational’s insurance requirements can be facilitated:
1. Stand Alone Policies: unrelated local insurance policies issued in every country where the multinational has risk or exposures. Each local policy is issued by a carrier licensed in the particular country.
2. Global Policy: single global insurance policy issued in the multinational’s home country to cover itself and worldwide exposure.
3. Controlled Master Programme (CMP): combines multiple local policies issued in the various countries with a global policy in the multinational’s home country. The global policy serves as a backdrop for the local policies providing coverage if a claim is either not covered under a local policy or the local policy limit is exhausted. The global policy and local polices are linked and as such a CMP would be considered the most efficient way for multinationals to secure insurance aligned with local laws, regulations and customs.
CMPs are an effective way to provide consistent coverage as well as tax and other financial benefits in the event of a loss. CMPs provide:
- Centralised control
- Consistent worldwide coverage
- Consideration of local laws and regulations
- Local claims handling and payment
- Evidence of local insurance
At AIG, our ability to provide local policies and service the needs of our multinational clients is virtually boundless. We have licensed carriers worldwide, ranging from large commercial hubs such as London, Paris, Tokyo, Hong Kong, Singapore and Sao Paolo to smaller locales like Papua New Guinea, Kenya and Azerbaijan.
With over 500 dedicated Multinational experts, 9,000 claims staff worldwide and a robust network of partners, AIG Global Network stands ready to serve our multinational clients’ coverage and claims wherever they occur. Our global claims network is supported by dedicated multinational regional managers in North America, Europe and Asia Pacific to drive superior and consistent customer experience, sharing best claims practices worldwide.This is backed by our analysis of key markets, global risk trends and insights into clients’ multinational programme design to help them optimise their multinational insurance protection.
Explore our Multinational Playbook to learn more about how our service can create value for clients: http://www.aig.com/multinational-playbook
Our multinational clients and brokers reap the benefits of in-country underwriting, claims expertise and resources accumulated over decades. Knowledge of local practices and customs is ingrained in our operations. We have forged long-standing relationships with local professionals, such as law firms, engineers, adjusters and regulatory bodies, to serve our clients’ local needs. Our local policies provide access to our network, and all of the capabilities that come with it.
To reiterate, understanding local regulation is extremely important but should not be the sole factor when considering implementing a multinational programme. Basic risk management principles apply. Even though the exposures are foreign, the principles for addressing them remain the same. If the decision is not to implement local policies, the company should be well versed on the potential pitfalls and limitations. The best protection will always be a company’s ability to make well-informed decisions in covering the company’s unique exposures, at home and in every jurisdiction in which it operates.
For any queries in relation to Multinational exposures, please feel free to contact James.Bohan@aig.com.