Marine Insurance: Challenges and Opportunities
Disclaimer The material in this program is designed to provide subject-related information of a general nature. There is no intention to render judgments or opinions about specific situations, brokers and/or clients. If legal, accounting, and/or tax advice or other expert assistance is required, the services of a competent professional should be sought. Presentations 2
Course Outline General Overview Complexities of Global Business Admitted vs. Restrictive Compliance Challenges Insurance Strategies Designing an Integrated Package of Coverages Basic Underwriting Issues Criteria for Selecting a Global Marine Carrier Benefits of Consolidating Coverages Presentations 3
General Overview Complexities of Global Business Admitted vs. Restrictive Compliance Challenges Insurance Strategies Designing an Integrated Package of Coverages Basic Underwriting Issues Criteria for Selecting a Global Marine Carrier Benefits of Consolidating Coverages Presentations 4
Need for admitted policies virtually non existent. Prior to 1990 Continued drive toward compliance (ocean/inland/location) 1990-2000 Movement toward admitted policies primarily driven by overseas location exposure. 2000-2005 Sarbanes-Oxley Act of 2002 2001 Kvaerner Decision 2005-Present More emphasis on compliance.
General Overview Complexities of Global Businesses Admitted vs. Restrictive Compliance Challenges Insurance Strategies Designing an Integrated Package of Coverages Basic Underwriting Issues Criteria for Selecting a Global Marine Carrier Benefits of Consolidating Coverages 6
The Complexities of Global Business 240+ countries and kingdoms Sometimes multiple provinces per country Licensing requirements Premium tax requirements Conflicting regulations and policy requirements Varying business practices Business promise to the Customer Reputation International Tax Authorities Framework and Assistance E&O / Liability Exposure TEM24(V1)Oct/28/09GC/ZCA 7
General Overview Complexities of Global Businesses Admitted vs. Restrictive Compliance Challenges Insurance Strategies Designing an Integrated Package of Coverages Basic Underwriting Issues Criteria for Selecting a Global Marine Carrier Benefits of Consolidating Coverages 8
Restrictive Insurance vs. Locally Admitted Insurance Required 9
RESTRICTIVE INSURANCE Put in place by local governments Apply to all shipments being imported or exported from their country Impacts all companies doing business with this country--not just countries that have a local entity in country Purpose, generally, to keep currency in country; support the local insurance industry Can avoid potential difficulties by having imports arranged so buyer is responsible for providing the insurance as determined by the Terms of Sale (INCOTERMS) Example Nigeria has restrictive insurance for imports 10
LOCAL ADMITTED INSURANCE REQUIRED Put in place by local government agencies Apply to the insured s entity domiciled in that country Requirements apply only where the local entity has title to the covered property Like restrictive insurance, also designed to help support and promote local insurance industry Premium taxes can also generate additional revenues for the local economy Exposures could involve ocean transit, inland transit (shipments within one country) or location exposures (warehouse/processing) Failure to comply with local regulations can result in problems with claims payment and possible penalties imposes on the local entity 11
General Overview Complexities of Global Businesses Admitted vs. Restrictive Compliance Challenges Insurance Strategies Designing an Integrated Package of Coverages Basic Underwriting Issues Criteria for Selecting a Global Marine Carrier Benefits of Consolidating Coverages 12
Regulatory and Governance Developments Impact of Kvaerner court ruling Impact of Sarbanes-Oxley Impact of Spitzer Investigations American-style litigation spreading globally 13
Significance of Kvaerner Ruling Defined insurance premium tax liability for the European Union Premium tax must be paid in country where risk is located Implications across multiple lines of insurance Jeopardizes legality of broad range of programs that were formerly deemed properly structured 14
Countries Prohibiting Non-Admitted Insurance (Examples of a total of approx. 140 jurisdictions) Brazil: Art. 1 of Law Decree No. 73 of 1966 Art. 113 Law Decree No. 73 of 1966 Art. 19 of Complementary Law No. 126 of 16 January 2007 Art. 20 of Complementary Law No. 126 of 16 January 2007 China: Circular 2002 No.112 of the China Insurance Regulatory Commission Japan: Article 186 Paragraph 1 of the Insurance Business Law France: Article L310 (various paragraphs) of the Insurance code Germany Section 140 of the Insurance Supervisory Law (VAG) and Section 81 (1) Italy Article 28 and 167 of the Insurance code Netherlands Articles 1:75, 1:66, 1:58, and others of the Dutch Financial Supervision Act and the Dutch Economic Offenses Act 15
Example: Argentina Imposed sanctions on the insured and the broker due to the placement of non-admitted policy in Argentina Policy was admitted in US and Isle of Mann Violation of Law no. 12,988 T.O. 1953 Severe fines were imposed On the insured: 8 times the premium amount On the intermediary: 15 times the amount of premium. 16
Consequences of Non-Compliance? Retrospective tax liabilities including potential fines and penalties Local authorities may declare sanctions against local operations Loss of license for offending carriers Non-compliant policies may be declared null and void Very strict penalties in some overseas jurisdictions, including fines, suspensions and imprisonment of offending insurers Depending upon jurisdiction and circumstances, rules/penalties might apply to the Insured, the AND/OR the Broker Print 17
General Overview Complexities of Global Businesses Admitted vs. Restrictive Compliance Challenges Insurance Strategies Designing an Integrated Package of Coverages Basic Underwriting Issues Criteria for Selecting a Global Marine Carrier Benefits of Consolidating Coverages 18
Legal Challenge: Location of Risk Rule Legal, regulatory, licensing and insurance premium tax (IPT) requirements in many cases attach to: The location of insured risk, or The place of the insurer s insurance activity Producing Country Worldwide cover - naming of local risk located in all foreign Insurer Policyholder Receiving Country Local Operation jurisdictions as co-insured Risk 19
What is to be considered when insuring international risks? Certainty of Coverage Tax Compliance Some countries DO NOT legally permit out-of-territory insurance - Different licensing rules pertaining to admitted insurance requirements - Sanctions on non-admitted insurance policies including the power to declare a policy void if not compliant Some countries DO permit out-of-territory insurance, but levy insurance premium taxes (IPT) on non-life insurance premiums that must be paid in order for out-of-territory insurance to be considered valid IPT rules vary by territory and by LOB - Different parties responsible for payment of taxes - Necessity of a licensed tax paying entity Print 20
Common Objections to Placing a Local Admitted Policy Never had it in the past, why now It s expensive Master policy has a broad named assured wording which covers all my exposures The risk manager can t be bothered with all the additional work Company XX is willing to issue one policy 21
Why do you want a multinational solution? The parent company s ability to - Assure consistent amounts and types of coverage and risk transfer terms worldwide - To centralize management of risk and not leave it to local entity to make insurance purchasing decisions - Use it s buying power to obtain favorable terms and pricing based on a global program - Obtain consolidated loss information about each subsidiary - Have a consistent approach to risk engineering 22
Basic Principles of an International Program The Master Policy sets the framework and scope of the program HOWEVER LOCAL INSURANCE REGULATIONS MAY REQUIRE 1) Coverage for a particular LOB 2) The company issuing the local policy must have a license in the issuing country 3) Adequate premium must be allocated for the local exposure 4) Insurance tax must be paid where due: locally or under the Master Policy 23
Country Particularities with Local Policies General considerations (amongst others) Mandatory local broker involvement Cash before coverage (e.g. Japan) Local Premium Payment deadlines Issuance of policy close or after policy expiration Level of premium requirements by the countries Sub-limits Wording restrictions Premium collection and payment (limitations e.g. Mexico) 24
Premium Allocation Historically most local underwriters accepted whatever premium allocation was suggested by the master underwriter Local regulators are scrutinizing premium tax No longer is the answer, this is what we want to allocate acceptable Where a small exposure exists many countries now have minimum premium levels that they will impose 25
Policy Issuance Fees Often referred to as override Can be based on premium size or estimated claim activity Should be charged in addition to risk transfer premium 26
Taxes Premium Taxes based on premium and override amounts added together Usually calculated as a percent of the premium plus override Always paid in addition to premium and policy issuance fee Each country has their own tax rates Different rates can apply to Ocean Cargo/ Inland Transit/Warehouse exposures Need to be able to allocate premium by exposure type. 27
General Overview Complexities of Global Businesses Admitted vs. Restrictive Compliance Challenges Insurance Strategies Designing an Integrated Package of Coverages Basic Underwriting Issues Criteria for Selecting a Global Marine Carrier Benefits of Consolidating Coverages 28
Ocean Cargo: Basic Underwriting Information What countries does the insured have entities that have responsibility to insure the ocean cargo shipments? The local name and street address of the company The import/export insured values that the local entity is responsible to insure Trading routes of the local entity 29
Inland Transit (within one country) Basic Underwriting Information What countries does the insured have entities that have responsibility to insure the inland transit shipments The incoming/outgoing insured values that the local entity is responsible to insure 30
Warehouse/Processing Basic Underwriting Information What countries does the insured have entities that have responsibility to insure covered property stored/processed at their own location or a third party location The street address of each location where coverage is needed The estimated average and maximum values at risk during the coming year for each location and the peak season, if relevant COPE Information for named locations desirable 31
General Overview Complexities of Global Businesses Admitted vs. Restrictive Compliance Challenges Insurance Strategies Designing an Integrated Package of Coverages Basic Underwriting Issues Criteria for Selecting a Global Marine Carrier Benefits of Consolidating Coverages 32
Criteria for Selecting a Global Marine Carrier Global reach Expertise Familiarity with local markets Compliance expertise Depth and breadth of insurance coverage Local claims expertise Local Risk Engineering 33
General Overview Complexities of Global Businesses Admitted vs. Restrictive Compliance Challenges Insurance Strategies Designing an Integrated Package of Coverages Basic Underwriting Issues Criteria for Selecting a Global Marine Carrier Benefits of Consolidating Coverages 34
The Benefits of an International Program: the 5 C s How can I optimize my total Costs of insurance? Property and Casualty Insurance Policy How do I ensure a consistent insurance Cover for all my local operations? Insurance Policy International Insurance Program Insurance Policy Marine Insurance How can I make my life Convenient by having one contact person only? How do I get an overview and Control of my local policies and claims? How do I deal with all local regulatory, legal and tax requirements ensuring Compliance? 35
Questions? 36