The Complexity Behind Multinational Losses
Having multinational exposure is almost inevitable for companies of all sizes, including Fortune 500 and small to middle market businesses. The need for international executive travel and the expanse of global supply chains brings risks to all organizations.
Also universal is the lack of preparedness. Events appearing “straightforward” in the U.S. take on a new level of complexity when certain factors are considered, like:
- Time zones
- Geographical distance
“Our research suggests that more than 40% of mid-to-large size commercial enterprises in the U.S. have never had specific conversations around multinational exposures with their brokers and insurers,” said Alfred Bergbauer, Head of Multinational Insurance at The Hartford.1
As a result, theirs is a panic moment when companies are unprepared for the complexity of multinational losses, especially when it involves employee safety,” Bergbauer explained.
These four loss scenarios demonstrate how complex multinational risks can be and why it’s imperative for companies to work with insurers that have the expertise to manage them.
1. Employee Injury
If an employee is injured during employment in the U.S., el seguro de compensación para trabajadores would help cover their care and treatment. The network of providers and process for managing a claim is already established. If the employee is injured while abroad, the protocol is not as simple.
“A piece of the injury claim could be covered from an accident insurance. A piece of it could be covered through workers’ compensation insurance. A piece of it could even be paid through health insurance,” Bergbauer explained. “As a result, it’s important to understand how these coverages work together when a loss occurs overseas.”
“More importantly, how will care and transport be coordinated? Bear in mind, the injured employee may not speak the local language and is unlikely familiar with their surroundings. If medical evacuation is called for, what provider will be called to action and what is the process for notifying them? Who will quarterback all of these communications and ensure action is taken?”
2. Kidnap and Ransom
What is the response if a key executive is kidnapped and held for ransom in a foreign country? This situation would be high stress anywhere, but when it happens abroad, there is the added challenge of getting to the kidnapped employee and bringing them home.
“Is there a crisis management plan in place? Is there a third-party vendor that is going to join the team?” Bergbauer said. “These are critical factors that lead to a successful outcome.”
In a kidnap and ransom scenario, there is also the possibility the employee can be injured – highlighting the importance of coordinating services and coverages. Whether a kidnap and ransom, business travel accident or workers’ compensation policy is triggered affects the vendors that will be called into action and how these actions will be financed.
“There are potential balance sheet implications with this type of event, and companies may have to contend with uncomfortable surprises like taxes or extra fees they could be responsible for,” Bergbauer said. “it’s critical for companies to understand how their multinational insurance program is structured, what policies will be triggered, and how they’ll pay when the worst happens.”
3. Product Liability
Whether product liability coverage applies under domestic or foreign policy depends on where the:
- Product was manufactured and sold
- Injury took place
- Suit is filed
So, a U.S. manufacturer selling products in multiple countries must consider the legal landscape of each country when estimating the potential impact of a product liability loss.
This exposure becomes a complex equation when factoring in:
- Local regulations
- Legal precedent
- Policy language
It’s a complex task that brokers and carriers sometimes fail to discuss in detail with their multinational clients.
“It is important to talk about where products are sold and the nature of the risk associated with the products,” Bergbauer said. “Teasing this out and doing a scenario plan focusing nn how each policy will respond helps inform structuring an insurance program that meets the risk finance strategy.
“The coverage should always address a company’s specific risks, but rarely do brokers and clients pull in the carrier to have a conversation around how this policy is to interact with other products in the context of a multinational program.”
4. Property Loss
Property loss seems to be the most straightforward type of loss. But when the loss occurs in a foreign location, the ripple effects are more profound.
In a multinational operation, business locations are interconnected and rely on each other. So, if a factor producing sub-component parts in the Philippines gets destroyed by a fire, then the factory in Germany relying on those parts can’t furnish the finished product. The retailer in the UK doesn’t get its product, threatening future revenue or contractual obligations and the bottom line of the parent company.
A single physical loss in one country can very quickly cause business interruption and economic loss in three or four countries down the supply chain. But the property policy on that Philippines factory may not pick up those claims. Suddenly that single, straightforward loss is triggering separate policies in multiple countries.
“If a business has multiple carriers, the potential for an outcome that leads to incomplete compensation becomes really high,” Bergbauer said. “If a business has a coordinated global insurance program with the expertise to manage losses impacting the supply chain, the potential for covering the loss is greater.”
What Defines a True Multinational Insurer?
To work through the panic of a loss and lift the fog of confusion, multinational organizations need a consultative relationship with an insurer that doesn’t just write policies but that takes time to understand a client’s operations and exposures.
The Hartford’s team of underwriters and claim professionals works across lines and alongside domestic teams to collaborate with insureds and brokers on coverage.
“We built a multinational capability within The Hartford that it is fully embedded within the fabric of our operations,” Bergbauer said. “When one of our producers or domestic underwriters spots a multinational exposure, we can be engaged to consult with those customers and dive into their risk profile.”
The Hartford’s multinational policy also includes its Global Insurer Network, which offers coverage options that a policyholder can use to build a program tailored to meet their needs. Through partnerships with about 90 individual insurance groups around the world, The Hartford can issue local admitted policies in more than 220 countries, ensuring all regulatory requirements are met.
These partnerships also ensure lines of communication are kept open, so that The Hartford’s U.S.-based claim professionals can work with local teams to:
- Coordinate services
- Provide the needed financing
- Gather information to relay to clients
“There is only a small community of insurers that have the expertise and products to provide policyholders with the ability to effectively build their multinational program, and we are one of the few with the capability to pull this all together,” Bergbauer explained.
Learn more about The Hartford’s multinational insurance and see how it can help protect your business.
1 2017 survey conducted by Hartford U.S.-based insureds with annual sales or revenues of $10 million to $1 billion.
Foreign local policies are underwritten by locally licensed third-party foreign insurers within The Hartford Global Insurer Network but are not related with The Hartford by ownership. Exporters and CMP policies are underwritten by Hartford Fire Insurance Company in the U.S. and issued to the U.S.-based insured, covering its financial interest relating to its exposures located outside of the U.S. Generally, claims under foreign local policies will be adjusted and paid locally by the local insurer with The Hartford providing oversight and serving as the U.S. insured’s point of contact in the U.S. Claims under the Exporters and CMP policies will generally be handled in the U.S. and paid to the U.S. insured in accordance with the terms and conditions of the policies. The Hartford may contract with third-party risk consultants to perform risk engineering services outside of the U.S.
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