Managing International Business Risk My insurance, is it legal, will it work? Anthony Horton anthony.horton@finchib.co.uk 13 th May 2014
Why are we here? To create awareness of a changing insurance environment internationally if you operate or may operate overseas To recognise that much of the change experienced by insurance buyers (You!) is triggered by tax scrutiny Purpose is not to alarm, but to encourage buyers (You!) to challenge what you think you know.
The Environment Multi-national companies expanding their reach Particularly in emerging markets Increasing demand for international insurance programmes Zurich Insurance Policies bought by foreign entities in Latin America up 226% in three years to 2012 RSA Estimates that Gross Written Premiums on multinational policies increasing US$25bn per annum. Seeking consistency of coverage Property & Liability, but also Directors & Officers, Professional Indemnity, Personal Accident and Environmental
The Environment Shifting Contractual Requirement Customers/suppliers Increasing demand for higher insurance limits More prescriptive requirement for coverage e.g. Contractual Liability, Additional Insured s, Waiver of Subrogation etc. Requirements sometimes outside local law or local insurance market capability/appetite. Evidence - No insurance, no contract! Increased regulatory and tax scrutiny On insurance for foreign invested companies International claims transactions
The Placement Challenge For the buyer (you!) What am I seeking to insure overseas? Can I insure it from the UK or must I insure it locally What does compliance look like? For the broker How can I meet my clients need in the most serviceable and cost-effect way? Legality of placement Admitted policy Non-admitted policy
Property Damage/Business Interruption
Workplace Injury/Third Party Liabilities
Non-admitted Programme
Locally Placed Programme
Controlled Master Programme
Taxation Increased Insurance Premium Tax Netherlands Australia Canada India Malaysia Withholding Tax On Exported Premiums e.g. Qatar Increased Tax Scrutiny In some countries recognising change in buying behaviours of foreign companies Increase in tax audits in USA and Europe
Regulatory/Supervision International Association of Insurance Supervisors (IAIS) 37 supervisory bodies have signed Memorandum of Understanding Members in 140 countries Collaborating internationally Sharing information on local insurance placement Supporting audits by tax authorities Increased regulatory enforcement US Insurer fined $6.2bn in Brazil for selling nonadmitted life assurance. Argentina Buyer and broker fined 15 times premium for entering into non-admitted contract
Insurance Regulation Endless process of change China Cash before cover China Compulsory Environmental insurance planned Nigeria Cash before cover (now common in Central and West Africa) Argentina Reinsurance restriction Brazil Reinsurance restriction Enforcement of local premium collection requirements Changing responsibility Russia September 2013 regulation of insurance industry assumed by Central Bank. Nigeria Pension Reform act 2004
For the buyer The Challenge How do I achieve compliance with the law and the contractual requirements of counter-parties? How do I comply with insurance placement rules? How do I ensure compliance with regard to local tax and other charges? For the broker Not how do I cover this risk? But how do I get an insurance solution that gets claims paid locally? For the insurer How do I comply with placement/licensing rules? Understanding the triggers
Australia Non admitted Insurance Permitted Unless the insurer is entering into insurance contracts for that insurance in Australia Unlicensed insurers can be used As long as the insured (you!) purchases directly from the insurer. The insured (you!) remains liable for satisfying export conditions and paying tax, fees and surcharges.
Brazil Non-admitted insurance is permitted If cover is not available locally This must be evidenced by 10 declinatures Local premium tax must be withheld before premium is exported (the responsibility for which is with the insured (You!)
China Non-admitted insurance is permitted where there is no local capacity Insured s (you!) face heavy corporate and personal fines for breach Insurers transacting without a licence face heavy fines and penalties Claims paid under unlicensed policies are subject to confiscation, fines and penalties.
India Non-admitted insurance is permitted if that insurance is not transacted in India and Reserve Bank of India gives consent Claims payments under non-admitted policies subject to tax
United States Non-admitted insurance is generally permitted Almost all states allow unlicensed insurers to transact insurance as long as via Surplus lines broker Independent procurement
Local Policies No consensus amongst insurers as to when and where required Common sense approach requirement shifts with activity and exposure e.g. Local office versus manufacturing plant Local forms usually reflect how claims will manifest locally Specific Requirement e.g. Brazil requires foreign companies (You!) that choose to insure to have a local Directors & Officers Liability policy
DIC/DIL Currently the biggest grey area Some countries recently declared not permitted Algeria, Kazakhstan, Russia, Ukraine and Pakistan Most countries silent Challenging most insurers with diversity of view/stance No change, but monitoring Clear statement by territory e.g. Papua New Guinea Insurers operate within their understanding of the law, and own compliance requirements Financial Interest Clause?
Claims Non-admitted or DIC/DIL Can a claim be paid in-country if a loss occurs? Can you engage loss adjusters, legal advisers, loss control engineers? How do you ensure a subsidiary receives the benefits of claims monies? Beware confiscation, fines and other charges (often multiples of premiums or claim) Example of Adidas fire in India 2009 D&O Corporate indemnification of Directors & Officers is not permitted in some countries.
There isn t one! A Silver Bullet? Changes are occurring almost daily Compliance can be subjective Get good advice globally and locally Partnership & collaboration are vital You! Broker Insurer Challenge what you think you know!
A valid claim should produce this
Not this..
or this..
or this!