Difference in Conditions (DIC), Difference in Limits (DIL) and Financial Interest Coverage (FINC) considerations for international programs
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International insurance programs provide multinational organisations with a consistent level of cover across their commercial activities worldwide.
But the complexity of the global insurance and legal landscape means it’s possible to stumble into problems which can impact how comprehensively risks to your business are covered.
Here, we examine key considerations around how and where your master policy will respond to provide additional indemnity to that available from the local policy.
Understand the mechanics and implications of FINC
Where there’s a shortfall in local cover following a loss, you don’t have a local policy in place in a territory that does not permit non-admitted coverage, or you don't have a local policy when non-admitted is permitted. Financial Interest Cover (FINC) in the master policy is designed to provide an alternative avenue to indemnity. But it's not as simple as transferring that money back to the local subsidiary.
Any reimbursement paid under a FINC claim against the master policy goes to the parent company in its home territory.
As an example, a European multinational spent a decade negotiating with authorities following a loss suffered by its subsidiary abroad. A local policy held by the subsidiary responded to the loss and provided settlement to the subsidiary in accordance with the policy conditions and limits.
Additional indemnity was available under the FINC clause in the master policy, held by the parent company. The parent made a FINC claim, which was accepted and settled in its home territory.
The local tax authority argued the payment to the parent was, in effect, made to benefit the subsidiary and so levied income tax on the payment. It took the parent almost a decade to argue successfully that the parent and the subsidiary had been indemnified as separate entities and by different insurance policies, and that the payment made under the master policy was not liable to local income tax.
The case highlights the effectiveness of the FINC clause in a master policy to enable a parent company to receive financial reimbursement for a reduction in the value of its interest in a subsidiary that has suffered a loss.
Be mindful of anomalies in local vs master policy coverage
Another issue that requires special attention is the fact that a master policy won’t always have a wider wording than a local policy. In most cases it will, but individual market anomalies mean this isn’t something you can take for granted.
If your company is headquartered in Germany with subsidiaries in the UK and mainland Europe, here's what differences between the master policy and local policies might look like:
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In Germany, property wordings don’t generally include cover for any element of liability. But in other European countries they do.
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In the UK, a property policy might also provide some level of personal accident cover and again this would not be included as standard in a German wording.
This means that the German master policy would not provide additional liability or personal accident cover to complement the cover offered by the local policies where such cover is standard.
This isn't a problem if the local policy limits are adequate to deal with losses. But it does mean as a risk manager you must be mindful of these issues and realise that higher limits in the master policy might not be available.
Our international experience and in-depth expertise will help to support you in navigating any potential pitfalls and make sure that the international program you put in place provides a consistent level of cover to support your organisation across all its global activities.
A special thanks to some of the experts in our network who shared their insights for this piece:
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Karen Gorman, Global Services & Solutions Leader Europe, Risk & Broking at Willis Towers Watson
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William Porter
Reto Collenberg
