Globally, one size does not fit all

As trade barriers fall and innovations in technology continue at a breakneck speed, more U.S. companies are reaching out and investing in international markets.

U.S. businesses cannot ignore opportunities in the global marketplace, with 95 percent of the world’s consumers living outside the United States. To stay competitive, companies have had to expand beyond the nation’s borders and venture into new markets. Consequently, international trade now accounts for one-third of the U.S. gross domestic product, according to government statistics.

It is a common misconception that only large corporations like General Motors or Microsoft have global operations. To grow and compete, even small and midsize companies have had to reach out to the global marketplace.

The number of small and midsize U.S. firms exporting goods more than doubled in the 1990s. In fact, companies with fewer than 500 employees account for 97 percent of U.S. exports, according to the U.S. Small Business Administration.

As companies expand into international markets, they will have to consider a number of important economic, political and cultural issues. At the same time, risk management and exposure analysis is critical to ensure that investments are properly protected from the risks associated with doing business outside the United States.

Those newer entrants to the global playing field will need international insurance protection and professional advice to help them identify their risks and find the solutions that best suit their needs.

Experienced producers recognize that with international expansion, there is an increased risk for loss. Those risks can create opportunities to provide consultation and guidance to the insurance buyer. Even companies with minor international exposures may need specific insurance solutions to properly protect their risks.

Without the right insurance, companies face not just the threat of financial losses, but potential tax liabilities, criminal penalties, reputational damage and loss of future market opportunities.

Exporters’ package
Companies have at least two insurance options to consider when protecting their foreign exposures. For a smaller company with goods, services or people traveling overseas, but no “bricks and mortar,” an exporters’ package may be the right solution.

The exporters’ package includes features such as foreign voluntary workers compensation, which includes medical assistance services not commonly available when endorsed onto the domestic policy, as well as foreign general liability and non-owned and hired automobile insurance.

Additional insurance can be purchased, such as personal property insurance for laptops or sales samples; and kidnap/ransom and travel accident insurance, all under one policy. For a competitive premium, businesses can be sure their basic exposures are being addressed as they begin to explore opportunities on a global basis.

Controlled master program
As a company’s international business grows, a controlled master insurance program (CMP) may better suit its needs. A CMP blends admitted policies, often required by local jurisdictions, with a master policy, which provides difference in conditions (DIC) and difference in limits (DIL) coverages. All policies are coordinated from one central location.

The DIC/DIL master policy works with the local admitted policies to provide the U.S. insured with global insurance similar to the scope of insurance customary in the U.S. market.

A CMP is important because policies purchased outside the United States often exclude losses routinely insured at home. Terms and conditions also can vary from one country to the next. There can be significant gaps in insurance if a company does not have a controlled master program.

Consider, for example, the experience of a U.S. company with facilities in a foreign country. An explosion took place near those facilities, and although no damage was reported to the company’s buildings, local authorities would not let employees back into the area. The company did not have a controlled master program, and its local insurance policies did not include insurance for the denial of access to the premises by the governmental authority.

The master policy can also provide unique features such as currency devaluation, coinsurance deficiency, tax liability, or neighbors and tenants liability, not typically found under a U.S. policy, but often needed by a company with international operations.

By filling in the gaps, the CMP allows companies to satisfy market needs in the countries where they are doing business while achieving their overall risk-management objectives.

Attractive opportunities
The global marketplace offers U.S. companies attractive opportunities to expand into new markets and generate increased sales. International business, however, also brings significant risks. Without the right insurance, companies could suffer financial setbacks and damage to their reputations.

Companies with dealings in foreign countries should look for an insurance carrier that understands the intricacies of the global insurance market and has a broad range of specialized products and services. An insurer with an extensive global network can provide specialized local underwriting expertise and coordinate loss control and claims handling on a global basis.

Smaller companies need an insurer that can grow with them as their international business expands. Look for an insurer with solutions for a company just getting started in the global marketplace and the capabilities needed to protect the business as it grows.

International insurance is not a one-size-fits-all solution. The right solution depends on the extent of the company’s business dealings outside the United States. Companies with significant overseas activities may need a CMP to ensure that a predictable and stable level of insurance is available for its operations, no matter where they are occurring. On the other hand, emerging companies whose overseas activities are limited to selling products in other countries through vendors very often can address their exposures by purchasing an exporters’ package.

Companies branching out into the global market need an insurer that understands their business and has the international experience and global networks to provide seamless underwriting expertise, as well as loss control and claim-handling services. Armed with the right policy and backed by an insurer that can stand by them as they grow and execute on the services promised, companies can enjoy the opportunities of the global marketplace with peace of mind.

Kathleen Ellis is a senior vice president of Chubb & Son, and manager of Multinational Risk Group – Global Accounts.