Understanding the Mysteries of International Risk and Insurance. Theresa Ulbricht, CPCU George Corde, CPCU Marcia Reynolds, CPCU

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2 Understanding the Mysteries of International Risk and Insurance Theresa Ulbricht, CPCU George Corde, CPCU Marcia Reynolds, CPCU

3 Agenda Risk Management Overview The World Vision Organization International Program Types Controlled Master Program Decentralized Program Program Structure Rate Structures Specialty Coverages and Situations Jeopardy!

4 Risk Management Overview

5 Risk Management Process Identifying loss exposure Analyzing loss exposure Examining the feasibility of risk management techniques Loss prevention Loss reduction Risk transfer Selecting the appropriate risk management techniques More than one technique applicable Implementing the selected risk management techniques Monitoring the results and revising the risk management program Management changes Political climate

6 World Vision International

7 World Vision International 2012

8 International Challenges Cultural Communication Language Modes of communication Monetary system Foreign exchange Time difference Economic environment Legal systems Political climate Warlike conditions Travel concerns Reputation

9 Identification of Exposures (via Survey) People Medical emergencies Travel mishaps Political emergencies Kidnapping Liability (foreign lawsuits) Assets Operational risks Premises Employment practices Lost or damaged real property Lost or damaged commodities Financial

10 Identification of Required Insurance In what countries do we have projects and offices? Varying insurance regulation. Compulsory insurance. Local insurance required. Nonadmitted not allowed. Fronting not permitted. Premium taxes and fees. In country required special perils. Contractual requirements. Reinsurance. Cultural habits regarding risk. Risk adverse affecting deductible selection. Employs local, national and expats.

11 Insurance Networks Broker utilization Global network/affiliates versus independent local brokers International expertise Creativity in program design/structure Insurer capabilities Global network and/or affiliations Coordination with master policy Financial security

12 Potential Global Insurance Products General liability All-risk property Automobile Workers compensation/foreign voluntary workers compensation Directors and officers Crime Fiduciary Ocean marine cargo Cyber Kidnap and ransom Political risk Business-travel accident

13 Barriers or Obstacles Legal climate Political environment Local business relationships Community relationships Foreign Corrupt Practices Act of 1977 Undefined program structure Market conditions Nonadmitted not permitted

14 Monitoring the Risk Management Plan Change of local country s insurance regulations Need to expand services into other countries Consolidation of corporate services Regulatory implications Activities suspended Political Monetary Change in insurer s financial security

15 International Program Types

16 Controlled Master Program A controlled master program is an insurance program that has as its basis a master policy written in the terms and conditions of the home country of the insured. Underlying this master policy are admitted policies that comply with local laws, issued to the insured s subsidiaries by the program insurer in the given countries. Combines a master policy issued in the U.S. with local admitted policies issued in various countries around the world. Negotiated and purchased by the home office to avoid gaps in coverage and bring terms up to U.S. standards. Available for various coverages property, general liability, automobile, foreign voluntary workers compensation and employers liability.

17 Difference in Conditions and Difference in Limits Known as DIC/DIL. DIL: provides policy limits excess of the underlying policy limits up to the limits evidenced on the master policy. DIC: provides the full scope of coverage found on the master policy, less the coverage provided on the locally issued policy. Summary: In the event that admitted coverage is more restrictive than the master policy s or the limits are less than the master policy s, the master policy will pick up the difference.

18 Diagram of a Controlled Master Program Insured s Headquarters U.S. Controlled Master Program Insurer B U.K. Local policy U.S. insured doing business in: U.K. Master policy Insurer C Japan Local policy Japan Insurer A U.S. Insurer D Australia Local policy Australia

19 Advantages and Disadvantages of the Controlled Master Program Advantages Cost efficiencies Consistency of coverages Satisfies local requirements, worldwide view, eliminates gaps Tax advantages for premium/losses paid in country Disadvantages Local-management disapproval Cost of local coverages Market limitations of insurance carriers

20 How the Controlled Master Program Works Locally issued policies apply to the scope of their coverage. If coverage not broad enough on the locally issued policy, the master policy applies on a nonadmitted basis. If there isn t a locally issued policy, the master policy applies on a nonadmitted basis. Replace or expand coverage not available locally. Brings coverage up to U.S. standards; broader terms and conditions.

21 Decentralized Program The insured purchases a broad-based policy in its home country providing worldwide territory and jurisdiction, but the insurer does not provide any of the locally issued policies. Admitted local policies purchased at local-management/country levels. Stand-alone programs to satisfy local requirements. Tends to be basic coverage in terms and conditions. Covers unknown gaps or coverages that are not available locally.

22 Decentralized Program Insured s Headquarters U.S. DIC/DIL policy Insurer A Local policy Local policy Local policy U.K. Japan Australia

23 Advantages and Disadvantages of Decentralized Programs Advantages Admitted local policies purchased at the local-management/country levels. Stand-alone programs to satisfy local requirements. Tends to be basic coverage in terms and conditions. Covers unknown gaps or coverages that are not available locally. Disadvantages Underwriters may be conservative in pricing the DIC/DIL policy because they are not as informed about the scope of coverage sitting below them. Cost inefficient from an insured s administrative standpoint.

24 Territory and Jurisdiction: Policy Implications Controlled master program Worldwide territory with suits brought in the U.S. and anywhere in the world Excludes countries with trade and economic sanctions Excludes the U.S., its territories and possessions Local admitted policy Territory limited to local country Territory can be endorsed to include other countries or jurisdictions depending on the laws of the country Definitions Territory (place where accident/occurrence takes place) Jurisdiction (where the claim is filed)

25 Other Considerations Rate structures Tariff set rates by insurance governing bodies Freedom of rate use company-developed rate Program designs Freedom of service one master policy issued for EU countries Currency Program versus policy Premium tax/inflation Local policy and allocations, sufficient limits

26 Other Considerations Excess liability U.S. integration/unlimited automobile/general liability less than U.S. limits Inflation Policy limits adjustment

27 Global or Local Broker Broker with network Coordinates servicing of local policies with own network or affiliates around the world Local broker will work with local insurance company to coordinate issuance, delivery, servicing, payment and claims handling for local client Broker without network Coordinates servicing of local policies with U.S. broker or paid broker network Local broker not required by law local insurance company will work with local company and U.S. broker to coordinate issuance, delivery, billing, claims handling where required Local broker required by law U.S. broker uses local broker network overseas and works with local broker to place local coverage with local company

28 Questions Questions?

29 Let s Play International Jeopardy!

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