The United States has a reputation for being litigious, which impacts business insurance because as claim costs go up, premium rates follow. Now, other parts of the world are starting to catch up.
“It’s not a rapid shift, but businesses with international operations need to recognize that it’s not just the U.S. that sues people,” says Todd Bennice, senior vice president of Risk Management at Hylant.
Rising nationalism also creates antagonism and adds to the litigious environment.
Smart Business spoke with Bennice about global risk trends and mitigation techniques.
How should businesses reduce their international risks?
Because of changes in political, economic and legal climates overseas, people are looking to shift risk, including through insurance. Areas of increasing concern are international credit, political and cargo risk.
If you’re a U.S. company with overseas operations, your firm faces credit risk. This stems from a concern that some customers may not meet their payment obligations. Trade credit insurance is a way to further mitigate your risk, as well as potentially open up further borrowing capacity with your bank. For example, a company with this exposure fragmented all over the world recently consolidated its program in order to spread risk and drive down cost. These same environments may also have unstable political, economic and/or religious climates, so it may be prudent to consider political risk coverage to address some of these risks.
Finally, with the increased risk in the Persian Gulf and other areas, it’s critical to ensure that your ocean cargo exposures are known and your insurance program is well constructed.
Also, in many countries, local brokers are required to place coverage. That’s why it’s critical to have a U.S. coordinating insurance broker with international expertise.
If your company has locations overseas, utilize a risk review to ensure your risk appetite is applied consistently. Cultural differences drive acceptances of risk. In most foreign countries, insurance policies have low deductibles and little risk taking. An analysis of each country and the way you purchase insurance can eliminate coverage overlap, and a global risk management program can help drive down costs.
If you don’t have brick-and-mortar locations, you may still export, import or travel overseas. Consider buying an international package policy, sometimes called an exporter’s package policy. It can provide modest amounts of property and liability insurance, such as protecting sales samples. This also addresses local automobile coverage and the application of workers’ compensation benefits if an employee is injured while working overseas.
What’s important to consider when entering a new market?
Companies already look at the business risks. ‘Do we want to do business here? Does the economic and political climate enable us to make money?’ But don’t forget to consider the situation from a risk management and insurance perspective.
Are you at risk for nationalization of your product? Can you simply add the new exposure to an existing global program (and do you want to)? What are the insurance requirements in the country? Have you factored these into your cost-benefit analysis? Are you required to work with a local broker, and how much premium must be placed and left in the local country? These are all examples of risk characteristics, which present unique challenges in a new market.
How about tariffs? How are they affecting Northeast Ohio companies?
The impact of tariffs varies across the business climate. Some companies are facing significant negative impact, while others have benefitted. What’s important to know is how tariffs impact your company, making sure that these projections are incorporated into your insurance and risk management. If a business is slowing down or speeding up, policy limits may need to be adjusted.
Tariffs are changing rapidly, so companies need a flexible insurance program that ebbs and flows with business decisions. That’s why you should communicate with your risk management and insurance adviser more than just a few times a year. If you have more frequent conversations with him or her, just like you would with your lawyer or accountant, you may find unexpected solutions together.
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