The importance of Difference in Conditions (DIC), Difference in Limits (DIL) and Financial Interest Coverage (FINC) in international programs

Along with the opportunities of operating on a global level – such as increased trade with diverse markets, economies of scale, increased collaboration, and shared resource potential to mention a few - multinational companies with assets around the world face a changing exposure landscape which brings new challenges.

For example, cyber-attacks, supply chain disruption, climate change and natural disasters, the pandemic and ongoing economic upheaval. In this ever-changing global risk landscape, it's imperative that you have consistent coverage across your international program worldwide to protect your commercial activities.

As a risk manager there is increased pressure from the C-Suite to have control of the risks facing your business. This is particularly important with the increased frequency and severity of global events, from floods and factory fires causing business interruption and Supply Chain disruption. These events can quickly lead to difficult questions about whether the business is covered for the fallout of these events and the impact on the companies’ P&L. 

Knowing exactly what is covered in every local policy, and the respective limits and conditions, is unrealistic. There are almost 200 countries worldwide, each with their own language, culture, and legal system, and virtually all with their own insurance rules and regulations.

This is where international insurance programs with DIC/DIL cover can prove invaluable.

International programs can be structured in different ways, but here we’re looking at those that have local policies in each of the territories where you’re active, backed by a master policy which is placed in the country where you’re headquartered.

The DIC clause in a multinational insurance program enables the master policy, which typically has broader coverage than the local policy, to be triggered when a claim happens if the local policy is not able to respond to the claim. It’s important to note that a local policy must be in place in the country where the claim occurs, otherwise the master policy and DIC clause will not respond. This places increased importance on corporations to consider what local policies need to be purchased especially in countries where non-admitted insurance is not allowed due to regulatory reasons. 

This is very similar to the DIC clause – but essentially it says that once the local policy limits are exhausted, the master policy will provide additional limits to respond to the claim up to the amount stated in the DIL clause.

Here we look at some of the features of an international program that enable it to meet the demands of different geographies in order to provide the consistent cover you need globally. 

In the case of DIL, the aim is to provide top-up limits to those set out in the local policy. In the event of a loss that exhausts local policy limits, additional cover can be triggered under the DIL clause in the master policy, assuming it has a higher limit. 

It’s important to note that DIC and DIL cover responds to shortfalls in the local policy when compared against the master and so can’t provide cover if there’s no local policy in place.  

FINC (Financial Interest Coverage) isn’t a like-for-like replacement for DIC/DIL cover. Instead, it provides cover for the reduction in the financial interest a parent has in a subsidiary as a result of the subsidiary suffering a loss. FINC also offers the parent company a means of compensation regarding losses suffered by subsidiaries in territories where there’s no local policy in place.

Generally, the reduction in financial interest will typically be quantified as what would have been paid to the subsidiary under the master policy if the cover were admitted in the local territory.