Understanding your insurance options as a multinational

Do all multinationals need an international insurance program? It depends on the type of your business and operations. Generally, you will need to consider international insurance options if you are domiciled in one country but have operations, sites, or exposures in others. Examples could range from a manufacturing business with a complex network of global production facilities to an international hotel chain with sites in different countries.

Some questions that might help you narrow down your needs, include:

• Does your business have subsidiaries located overseas?
• Does it have offices, factories, assembly sites or service units situated in different countries around the world?
• If you’re based out of one location, but selling into overseas markets, what are your terms of sale?
• Does your liability stop at the border or extend internationally? 

Answers to the above questions will help identify your needs for international insurance coverage. As a risk manager, you'll want to know your options.

So, what routes are available to risk managers to manage international exposures?

You might be tempted to let each subsidiary manage their own insurance, and, for expanding businesses, allowing new operations to look after their own insurance cover is quite common. But while this gives them more autonomy and could potentially be less expensive, it could cause problems down the road – especially as the number of international subsidiaries grows.

The problem is that buying insurance locally makes it almost impossible to get a consistent level of cover in place for all your operations. In addition, it’s tough to get an overview of exactly what each policy provides in coverage because the scope of the insurance will vary from one territory to another. This can be a real problem if you want a basic standard of cover across your international operations. Also tracking claims data on a global level (e.g. on costs/premium spent, claims data, and coverage) is far more challenging when insurance coverage is purchased by individual local policies.

With individual local policies, another challenge is visibility of your claims and claims history on a global scale. It is difficult to obtain data on costs and premiums spent on a global basis. It’s also harder to implement a coordinated risk management and mitigation strategy across individual policies. This in turn makes it difficult for you to leverage better terms and sharper pricing from carriers based on an improved risk profile at the corporate level.

The most flexible option is an international program, which is made up of individual policies issued locally that are backed by a master policy, typically written in the country where your business is headquartered.

This program will consist of local policies, issued by locally admitted carriers, where the exposures or your requirements warrant. Smaller exposures may be covered on a non-admitted basis under the Master policy (where permitted) or in some cases via Financial Interest Coverage. They also ensure local market practitioners are on hand to manage claims and provide other services (e.g. local insurance certificates, risk engineering services, etc.) through their network of in-country experts. 

Carriers offering international programs will have insurance licenses in different countries around the world and work with partners to provide local policies in those where they don’t.  

To account for differences in coverage or limits in local policies, the master policy is there to fill in the gaps and create a global standard. It does this through the application of difference in conditions (DIC) difference in limits (DIL) coverage. Financial Interest Coverage (FINC) is provided to the Parent Company under the Master Policy cover for local policies' DIC/DIL when permissible non-admitted is not allowed. FINC loss is defined as being equal to the amount the insurer would have had to pay the uninsured subsidiary which has been insured under the local policy. 

Ideally, the terms and conditions of the policies within multinational insurance programs will be aligned as closely as possible to support consistent cover, aside from where required to comply with local standards and regulations. An example of successfully aligning terms and conditions across an international program is the introduction of more standardised wording around the world, such as our ONE Form policy for Property programs.        

Building an international program is one step in making it easier to comply with local market requirements, laws, and legislation. Moving to more consistent policy language for your master and local policies goes further to give you peace of mind in how your program will respond no matter where in the world it is needed.

William Porter, Head International Programs Americas, Swiss Re Corporate Solutions:

"We're increasingly seeing more and more smaller and mid-sized companies buying international programs. These programs offer significant advantages, with more efficient and effective cover, as well as being able to take advantage of the digitalisation in the industry too. Risk managers want to mitigate risks for their company, and this route helps navigate the complexities of insurance risks internationally."