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Global insurance programs have key challenges to overcome


NEW YORK—Insurance is highly regulated around the world, but it also is regulated inconsistently, creating a significant challenge in crafting global insurance programs, a global insurance expert says.

Speaking last week at the annual Business Insurance Risk Management Summit®, Thomas A. Lawson, executive vp at Johnston, R.I.-based Factory Mutual Insurance Co., which does business as FM Global, said compliance with local insurance regulations can be a matter of perspective. Buyers, insurers and regulators each have their own view of what is compliant, he said.

“You can go from having a broad master policy and no local coverage to the opposite extreme, where you have all local policies and no master,” Mr. Lawson said, speaking as part of an executive panel examining global expansion risks. The goal, he said, is to craft “the most compliant policy that works for you.”

“You want to make sure you have the coverage you think you have when something bad happens,” Mr. Lawson said.

In assembling a global insurance program, it's also essential to focus on contract certainty, Mr. Lawson said. “The loss always finds the hole in the policy.”

Another panelist, Mary K. Cline, director, corporate advisory services at Eurasia Group in Washington, said countries that offer the greatest economic growth for global companies also are likely to present challenges from an insurance and risk perspective.

“There are going to be challenges with high-growth areas,” Ms. Cline said. Among them, she said, are the time it takes to start a business, the depth of available credit information, the strength of legal rights, the time it takes to enforce contracts, attitudes toward foreign investment, property rights, intellectual property rights, tax policy and capital movement.

Political risk, by and large, hasn't been incorporated into enterprise risk management and business models, Ms. Cline said. “The biggest kind of black swan right now and the one that everyone is looking at is a kind of political risk,” she said.

Examining revenue risk per country vs. political risk per country can help a company identify its most significant ex-posures, Ms. Cline said.

In seeking success with international claims, the first step is to get the insurance coverage right at placement, said panelist Peter D. Laun, a partner at law firm Jones Day in Pittsburgh.

One thing that makes the biggest differences in international claims is differences between the nonadmitted global master insurer and local insurers, Mr. Laun said. Local experience is the key in many coverage situations, he said.

Even if a loss is addressed in the global master policy, if it's a loss not typically covered by local insurers in the country, a local insurer might say “We don't pay that,” he said.

Choice of forum and choice of law in resolving disputes also can be critical elements of policies, Mr. Laun said. “If you get a claim dispute, where do you end up in court?”

In assembling a claims team to address a foreign loss, the proper team structure likely is a case-by-case decision. “I've gone with all-U.S. teams and I've gone with all-local teams, and I've gone with hybrids,” Mr. Laun said. “And the answer is not always clear.”

“You never know what you're going to run into with international claims,” he said. So before a company begins to structure a claim, it's important to determine coverage details, identify any potential potholes, and structure the claim and the company's approach accordingly.

Unusual claims always present challenges in international programs, Mr. Laun said. “One of the things I've found to be the hardest in claims over the years is that the nontraditional claim makes for some head scratching.”

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