It’s a reality of business today: many of the products sold in the U.S. are part of a global supply chain. There is even a debate surrounding what percentage of a product has to come from the United States in order to be labeled “Made in the U.S.A.”
“Unless they are very small, most manufacturing and distribution companies in the U.S. are involved with at least one other country,” says Debra F. Scalice, vice president, Millennium Corporate Solutions.
“Importing from China alone has increased from $109 billion in 2001 to $365 billion today — that’s huge; almost a 300 percent increase. Obviously the removal of U.S. manufacturing jobs has had multiple impacts, and among these is increased international risk,” Scalice adds.
Unfortunately, she says, many U.S. companies are not fully cognizant of the consequences that may occur if they are not covered properly while conducting business with and in other nations.
Smart Business asked Scalice about some of the exposures businesses face and what they can do to minimize them.
Why is international risk such an important topic right now?
Many U.S. manufacturers are fighting to stay alive and they are often resorting to smaller, niche markets, leaving their old product skews behind and innovating new products or parts, which are imports. They must change or face extinction via lack of competitive price points. Nearly all U.S. companies are involved to some degree with importing or exporting. All too often, U.S. companies think they are protected from various liabilities when in reality they are not. It is easy to misinterpret your coverage. Countries have very specific mandates about the types of coverage you need to have and who is legally able to provide that coverage — Mexico is a good example. If you don’t have a Mexican insurance company and something goes wrong, you’re going to jail.
What are some of the risks involved with property exposure?
Typically, international property exposures are similar to domestic exposures. You need to know where the property is located, whether there are any nationally mandated coverages, availability of coverage subject to increased hazards, if the property is adequately covered while in transit, and if you are using the shipper’s coverage or purchasing your own.
Are there any time constraints regarding the arrival of your property? What if the goods arrive at the harbor and half of the product isn’t there? Or, has the product been substituted using trickery? What level of risk are you prepared to take on yourself? On the other hand, if you are exporting, what happens if the companies you are exporting to owe you money and disappear? Can you handle the financial loss or will you need credit insurance?
What key factors about liability exposure do companies need to be aware of?
If you’re manufacturing in the U.S. and your policy says you have worldwide coverage and protection, don’t let that lull you into a false sense of security. It probably means you’re only covered for lawsuits initiated in the U.S. Let’s say you sell something in Europe and someone gets hurt. You think you have worldwide coverage, but if you don’t have proper international liability in place, there could be terrible financial consequences.
Liability exposure for importers is another consideration. There are many domestic carriers who are not interested in covering imported products. So if you’re an importer and something goes wrong with the product you imported, you will be held accountable, as there is no domestic manufacturer to seek financial restitution from. It is very difficult to sue in other countries, which are often ‘developing.’ Who will you sue in that country? Are they even liable according to their laws? What if the products you’re bringing in and selling to your clients start to fail? This is a nuance of international business you can’t insure for, but you have to contemplate the risk.
What are some considerations for traveling overseas for business?
In today’s world, you do not want to be walking around a foreign country without proper risk assessment and coverage. Let’s say you’re a salesperson who travels to London for your boss; you and your boss decide you should live there temporarily. The employer needs to cover you for workers’ compensation in that country — it’s a human resource issue. Or let’s say you’re the CEO of your own business and you’ve excluded yourself from workers’ compensation insurance. You go to Europe and something happens to you — you have a car accident or a health event, or a political act takes place. Who will pay to bring you back to the U.S.? Kidnap and ransom are also real concerns. If you are an American traveling abroad, you are a target. There are hotter spots than others in terms of exposure, but it’s actually quite common and happens all over the world. For any executives who are traveling, you need to ensure that risk management techniques have been employed to help assure your safety and that the right coverage is in place.
How can companies ensure that they are protected properly?
Talk with your international attorney and a diligent insurance broker who will show you how to protect your interests. They will help you determine your own risk tolerance, where you are exposed, and what needs to be covered. Seek a broker familiar with international risk who will know the insurance vehicles available to cover international risk. Equally important, the broker will help you understand what is not covered. This is a very dynamic and fluid area so it’s important to keep in touch with your broker on a regular basis to ensure you are properly covered at all times.
DEBRA F. SCALICE is vice president, Millennium Corporate Solutions. Reach her at (949) 679-7139 or firstname.lastname@example.org.
When buying or renewing any type of insurance for your business, you have to strike a balance between price and coverage.
“Since the recession, so many buyers are making decisions about insurance based on price alone. They know they need insurance, so they take the lowest-price option, many times sacrificing coverage or service or both,” says Steve Grane, partner, Millennium Corporate Solutions. “The problem comes in, however, if something happens and they’re not covered. Then there can be all kinds of negative consequences to deal with.”
Grane says that the goal of a good broker or agent should always be to get his or her client the best coverage at the best price.
“If the broker or agent doesn’t have your best interests at heart, you could really get burned,” he says.
Smart Business asked Grane for tips on how buyers can get the most bang for their buck when making insurance purchasing decisions.
What should a buyer do if his or her rates have increased to a price that is higher than expected?
The first instinct may be to go price shopping. But you have to think about your risk at the present time. Is it different than it was a year ago? Is it going to become greater over the coming year? Each situation is different.
You then have to weigh the premium increase and total cost against how much it will cost if you have a claim that’s not covered. Talk with your broker or agent. There might be places where you can raise your deductible.
You should also see what other options are available in the market. Get three bids. Make sure the bids are for the same coverage you already have. Request a face-to-face meeting. You can usually determine rather quickly if the person is legitimate. If the person is ethical, he or she will lay out the premium costs and all the coverages in a way that you can easily understand. Ask for the names of people you can call to assess how responsive this person is. You want someone who is accessible — someone who will return your call within a few hours, not a few days.
What else should the buyer look for when comparing bids?
You have to compare apples to apples. Ask your current broker or agent to give you a comparison sheet on the main coverages. Ask him or her to write out what is covered and what the limits are. Then ask others who are bidding to do the same. For example, say you are responsible for homeowner association (HOA) insurance. The total insured value on the declarations page is $10 million. The agents or brokers who are submitting bids should come in and take a square foot inventory and then provide you with a cost analysis of what it would cost to reconstruct the property per square foot. They would use this as a guideline to come up with total insured value. In some cases, it may be determined that you are underinsured.
How can being underinsured cost more in the long run?
Let’s look at the liability that comes from being on the HOA board. There are many different directors’ and officers’ liability policies out there. You can get a very inexpensive policy as part of the main policy, but it’s not going to cover much. For about 10 percent more, say around $1,000, you can get 60-70 percent more coverage to protect board members against things such as wrongful acts, sexual harassment, nonmonetary claims and spousal liability. Board members are volunteers, and if a homeowner decides to sue, even for nonmonetary claims, it can end up costing the volunteers a great deal of money out of their own pockets if they are not adequately insured.
If coverage levels are comparable and it comes down to price, what next?
Service is just as important as price. What would happen if you actually had to file a claim? How professionally will the claim be processed, and how swiftly? Is the insurance company A-rated on AM Best? Is the adjustor easy to reach?
How can the buyer be sure that the claims will be processed quickly?
You can’t know for sure until you have a claim. That is where the importance of the relationship with the broker or agent comes into play. If you find out the hard way that the company with the lowest price is not responsive, it can cost you thousands of dollars of your own money trying to fix problems while you are waiting for a claim to be settled.
How often should insurance needs be reassessed?
Talk with your broker or agent at least four or five times throughout the year, and always at renewal. This way, if there are any changes, or anticipated changes, the broker or agent can ensure that your insurance coverage reflects the changes. You should view your broker or agent as a partner. They are like football officials. At the worst games, there are all kinds of complaints about the calls; at the best games, you don’t even realize they are there.
STEVE GRANE is a partner with Millennium Corporate Solutions. Reach him at (949) 679-7131 or SGrane@mcsins.com.