Master policies for multinational
risks make sense, but regulators aren’t structured to
accommodate them as businesses expand
“It would be so nice if something made sense for a
change,” says Alice in Alice in
Wonderland. Did you realize she was actually an
insurance broker? (Well, maybe not.) Brokers, like Alice,
can’t make any sense of change, especially the
country-by-country regulations that they have to navigate for
multinational clients. Brokers face a daunting challenge to put
together the most efficient global program possible while
satisfying the countless local laws and regulations.
Expanding globally is a great way for a business to grow,
but it also means dealing with a host of new risks to the
business’s property and people located outside its home
country. Depending on the number of countries in which it
operates, a multinational can face hundreds of new exposures.
Whether a company operates in one foreign jurisdiction or many,
it’s important to have the right insurance program with
the right limits and covers in place to protect its assets.
Global insurance programs can help a business protect its
subsidiaries and affiliates, but there are obstacles to making
a program work effectively. Each country has its own
regulations for placing insurance and paying taxes. These rules
vary widely from jurisdiction to jurisdiction, potentially
creating gaps in coverage and a patchwork of local and global
policies to cover all of a multinational’s bases. Finding
adequate coverage and complying with local regulations require
close communication among the parties involved: the insured,
the insurer and the broker who ties it all together.
To cover a company’s exposures for its foreign
subsidiaries, brokers can put together local stand-alone
policies, which meet local requirements and limits. Stand-alone
policies make sense when there are only a few exposures in a
limited number of countries. For more complex, worldwide risks,
brokers might prefer to go with a master policy to cover the
parent company and wrap around local policies for its foreign
subsidiaries. Examples of global coverage include global
property, difference in conditions, difference in limits,
umbrella liability, directors and officers liability and errors
Master policies can help deliver what the buyer wants most:
efficiency, consistency and cost control. For the insured, the
goal is to have the broadest coverage under a global policy and
the ability to manage risks and have claims paid.
A master policy can help protect the parent’s balance
sheet and fill in coverage gaps in the local policy. It also
provides the multinational with greater consistency in the
terms and conditions of its worldwide exposures, in handling
claims and in managing its collective risks.
Putting together a comprehensive and compliant master policy
is not for the faint of heart. Most nations restrict placement
with “non-admitted insurers” and require policies
to be placed in the domestic market. These restrictions
don’t always take into account the often limited capacity
of the local market to cover the risk needs of multinationals.
If capacity isn’t available locally, then the global
market has to be tapped.
Some of the nations with the strictest non-admitted rules
include Argentina, Brazil, India and China. The United Kingdom
and Singapore are more liberal and allow local risks to be
placed in the non-admitted market. The United States and
Australia generally permit non-admitted insurance but require
specific procedures to be followed and taxes to be paid.
The penalties for non-compliance can be stiff. In China,
anyone engaging in an illegal activity can be subject to a fine
of between one to five times the value of any gain made from
the transaction. A broker who places business with an
unauthorized foreign insurer is considered to be operating an
illegal business in China and is subject to the same penalties
as an unauthorized insurer.
In Argentina, fines can be as high as 25 times premium for a
violation of its non-admitted rules. In addition, the policy
may be voided, and a company’s directors and officers can
be held liable.
Complying with insurance premium and other taxes is another
matter. If the transaction is not done correctly, paying local
taxes may not be possible. If the taxes aren’t paid, the
tax authority can go after anyone involved in the transaction:
the insurer, the broker and the insured. In these tough
economic times, tax authorities are looking for revenue
anywhere they can find it and are cracking down on taxes owed
on insurance placements.
A good resource for tracking taxes worldwide is a tool,
offered by TMF VAT & IPT Services, which calculates the
taxes owed on multi-country risks. Council members receive a
20% discount on the tax calculator.
Master policies for multinational risks make good public
policy sense, but the regulatory world isn’t yet
structured to accommodate the insurance needs of businesses
expanding internationally. Risk managers, brokers and insurers
must work together to educate policymakers and regulators on
the value of global programs to growing businesses and find a
way to allow these efficient programs to be used across
Kemper is The Council’s vice president of Industry