Local regulations governing the purchase of insurance can pose a challenge to multinational corporations attempting to arrange a single, global travel accident and health care policy for employees traveling internationally.

While the European Union's freedom of services directive permits British companies to purchase a single accident and health policy from a U.K.-licensed insurer to cover employees from subsidiaries throughout the European Union, U.S.-based employers do not have that luxury.

“Whether a covered claim for medical expenses can be paid in a country in which the insurer is not licensed depends on local laws and local practices,” said Suresh Krishnan, general counsel with Ace Ltd.'s multinational client group.

For example, China and Mexico permit a business traveler to purchase travel accident and health insurance in the traveler's home country before entering those countries, but Belarus requires travel or medical insurance to be purchased from that country's state-owned insurer, he said.

“The regulatory issues most commonly tend to arise when a parent company purchases one policy in its home jurisdiction to cover both its own employees as well as the employees of its subsidiaries and affiliates, when these are located in jurisdictions that are highly restrictive to the purchase of unlicensed insurance to insure local risks,” Mr. Krishnan said.

Several countries historically have restricted the sale and purchase of nonadmitted insurance, defined as insurance provided by insurers that are not licensed to operate in a particular jurisdiction.

Argentina, for example, imposed penalties for up to 25 times the premium, payable by the policyholder and the agent or broker when local placement rules were not followed, according to Mr. Krishnan.

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Other countries with restrictions on the sale and purchase of nonadmitted coverage include Brazil, Canada, China, India, Japan, Mexico, Russia, Switzerland and the United States, he said.

“As you know, insurance is a highly regulated industry. Even Lloyd's (of London) has limitations on where it can write on an admitted basis. There is no one global policy accepted in every country,” said Andres Franzetti, engagement manager of partner solutions at Washington-based managing general agency Clements Worldwide.

“In some cases, the company may have to buy primary coverage locally from admitted insurers and using locally licensed agents and brokers,” he said. But “on the back end, there could be a single, global (excess) policy,” especially when local policies do not provide sufficient coverage limits, he said.

“The most prudent approach for the multinational is therefore to purchase local policies where required and then complement these with a master parent policy in the parent's jurisdiction that provides wider coverage and additional limits, compared with what is available locally,” Mr. Krishnan said.

Beyond restrictions on the purchase of unlicensed insurance, multinational corporations could face income tax consequences if the parent company's insurance policy covers claims filed on behalf of foreign subsidiaries, according to Christian Hunter, global insurance regulatory and tax consulting practice manager at Marsh Inc. in New York.

“Any time you have a claim paid in a country other than where the claim occurred is where you see income tax implications,” he said.

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For example, say an employee of the Brazilian subsidiary of a U.S. company is traveling on company business in Argentina. Assume the entire company is insured under a global travel accident policy issued by a U.S.-based insurer to the U.S. parent. If the employee were to suffer an injury in Argentina, the U.S. insurer would respond to the loss and will indemnify the U.S. parent for the loss with payment in the United States. The claim proceeds may be subject to income tax in the United States, according to Mr. Hunter, with no offsetting deductible loss.

Employers who send employees on foreign assignments for extended periods of time also may be required by local regulators to purchase workers compensation insurance from a locally licensed insurer.

“If you have U.S.-based employees and have U.S.-based workers comp, it will provide coverage in the United States,” said Mr. Hunter. “When the worker goes outside of the United States, foreign voluntary work comp may extend that coverage outside of the United States for a limited period of time by endorsement. If an employee is injured while abroad, the insurer will treat the injury as if it occurred in the United States, regardless of where it actually occurs, and pay benefits.”

“However, there may be local requirements for workers compensation coverage. When you have someone working in a country, even on a temporary basis, you may be triggering the local workers compensation requirement. In some cases, they may have a government-run system” in which only the state insurer can provide coverage, Mr. Hunter said.

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Kidnap and ransom coverage also may be restricted in some situations, according to Mr. Hunter.

“Say a U.S.-based employee is kidnapped in Mexico. The location of the risk would likely be viewed as in the U.S. From an insurance regulation standpoint, I don't see how a Mexico regulator could reasonably object,” he said.

“Notwithstanding the above mentioned regulatory and tax implications of global programs, multinational companies should ensure that the commercial constraints are also considered, such as local coverage availability, appropriate local limits, total cost of risk (and) ability of the local insurer to adjust and pay claims,” Mr. Hunter said.