International issues Featured

8:00pm EDT September 25, 2008

Regardless of whether your business exports a few products overseas or is a far-flung multinational, assessing your international insurance coverage is important to limit exposure, particularly in this ever-changing global economy.

“There are many factors that must be taken into account before a business can be fully insured overseas, including ever-changing compliance and regulatory issues within a country,” says Steve Henthorn, the director of Aon Global Client Network for Aon Risk Services, Inc.

Smart Business spoke with Henthorn about how businesses can determine if their overseas operations are adequately covered and what to do if they are not.

What challenges do businesses face today when operating an organization abroad?

Legal environments are constantly changing. The United States has exported some of its litigious culture to Europe. The EU and its member states are not always consistent in their approach to products liability issues. There is also an increase in ‘forum shopping’ (favorable jurisdiction to bring a lawsuit and more class actions suits).

The placement of D&O policies is also undergoing a significant change. Historically, a single policy was issued in the corporate home country, intending to cover exposures on a worldwide basis. Now, policies are being issued in numerous countries for tax reasons, indemnification considerations and at the request of local directors or officers who want to make sure coverage is in place.

There are other pressing challenges as well:


  • Compliance. Regulations vary depending on the country and can change periodically. Two examples are: the proper payment of insurance taxes (which can change as local tax structures change), and the use of local policies rather than ‘nonadmitted policies’ (policies issued in one country to protect clients with operations in a second country). In some countries, ‘nonadmitted’ policies are allowed, but in others, it is strictly forbidden.



  • Emerging nations (BRIC — Brazil, Russia, India and China). Nearly all major multinationals are setting up shop in one, if not all, of these countries. There are some interesting challenges in these countries. For one, the regulatory landscape is a moving target and must be constantly monitored.


    Second, while we have a pretty good understanding of natural hazard exposures in the United States and Western Europe, the same cannot always be said for the BRIC nations. Because we cannot always assess the risk from earthquakes, floods and windstorm with the same degree of comfort, a business’s operations and profits may be vulnerable.


  • Political risks. In some cases, insurance is available for political risks, and in other cases, it is difficult to get insurance. One risk is that if a country nationalizes outside ownership, such as Venezuela has, it becomes a major problem for multinationals operating in that country. Another major concern is inflation because a business can quickly become underinsured in a country with high inflation. This is why it is important to reassess an overseas policy annually.


What can businesses do to make sure that their international operations are covered?

Risk managers need to do a risk assessment for operations abroad exactly the way they would conduct an assessment in the United States. Remember, a building in Shanghai can burn to the ground exactly like a building in Cleveland. Similar approaches are needed to protect the property.

This process includes taking inventory of assets and the insurance the business currently has to cover these assets. It also involves assessing the costs to replace equipment and property, and any interdependencies with other companies (such as suppliers) that could negatively impact sales.

Is just one insurance company enough to get adequate coverage?

The number of underwriters required to adequately insure a multinational company varies. Some companies are licensed in many countries and can match the global footprint of major multinationals. Rarely, however, is one insurer used for all coverages. Property and/or liability coverage may be provided by a group of carriers. Finally, certain programs must be underwritten ‘in-country.’ Selection of insurers should be based on coverage, costs, services and financial security.

It is common for both liability and property coverages for a Controlled Master Program to be created. Local policies are issued and a Master Policy written in the home country. This approach fills in the gaps between a very broad corporate contract and what may be good local standard.

What can happen to a business when it does not have adequate international insurance?

One major area of concern — that can be covered by insurance — is problems within the supply chain. More companies are sourcing component parts from around the world. Problems can happen anywhere along the way. For example, if a natural disaster damages or shuts down a supplier’s factory, the company won’t be able to make a complete product, and it will lose sales and market share, and earnings will go down.

The general impact of not having international insurance is very much like not having insurance in the United States. The corporation is exposed to financial loss, which often can be huge.

STEVE HENTHORN is the director of Aon Global Client Network for Aon Risk Services, Inc. (, a risk management, human capital and reinsurance consulting firm based in Cleveland. Reach him at (216) 623-4153 or