Companies that trade internationally face many challenges, not least of which is the issue of insurance protection.
Globalization and the steady growth in world trade have meant a growing demand for global insurance programs, and in particular for marine insurance. At the same time, the economic downturn has resulted in a fundamental change in the area of compliance, and this has had a major effect on the purchasing of marine insurance.
Regulatory restrictions
Many countries around the globe have some form of regulatory restrictions, which are designed to protect the local market. These include:
- local policy taxes (admitted insurance)
- restrictions on non-admitted insurance
- compulsory insurances
- reinsurance restrictions
exchange controls
- national pools.
Existing regulations are being strictly enforced more than ever before as countries face increasing fi scal pressure.
The aim is simple: to keep premiums within the country, and to raise revenue by taxing those premiums. As a result of the downturn, many countries are looking to have their own internal insurance industries, even if it is just for tax revenue purposes, and this is driving a lot of the regulatory issues.
Consumer protection laws
Increases in consumer protection laws have been driving the need for locally admitted policies. Countries are increasingly looking to
protect consumers in their territory by only allowing insurance with insurers that are regulated by the country. Governments
want to ensure that there is recourse to a local insurer in the event of something going wrong.
Use of non-admitted insurance is simply not an option in many countries. Countries may insist on an admitted insurer for all insurances or for compulsory insurances. There may be compulsory cessions to national pools related to terrorism, environmental insurance or taxation of nonadmitted insurance.
Greater protectionism
It is all part of a wider move towards greater protectionism around the world. A report last year, “G-20 Protection in the Wake of the Great Recession,” 5 commissioned by the International Chamber of Commerce’s (ICC) Research Foundation found that all G-20 countries have implemented protectionist trade measures over the last two years. By September 2009, the G-20 were responsible for 172 such measures being implemented, with hundreds more in the pipeline. The report said that “the sweep of protectionist policies in the wake of the Great Recession is alarming.”
Ensuring compliance
For the trade and shipping sectors, alignment with insurance regulations is becoming a crucial factor. This is not only because there may be problems with recovery, or with the ability to have a claim paid to the company where it is not locally represented, but also because of the issue of fines. This is a topic that affects the insurer, the broker and the insured, all of whom can be hit by fines, which in some cases can be substantial. Therefore, when choosing a carrier, international companies should be increasingly focused on the carriers’ global capability. As companies look to expand into new territories, with new suppliers, or new markets, they need to know that they are fully compliant.
Local representation
Take, for example, a UK company representative who visits a Kenyan trade show and sells products, which are later shipped to Kenya. If these products are damaged in transit, that company is unlikely to have any representatives in Kenya to take care of the problem. Compliance goes beyond just making sure the paperwork ties up – it is also about coming up with bottom end solution when things do go wrong. Marine is one of the few areas where this can happen, where you can have a claim in a territory where you may not have any sort of base or representation. Many claimants are outside of the country where the policy is produced, and so global delivery becomes a crucial element.
With the globalization of trade, there is a particular issue for compliance when goods go into storage and distribution.
Where goods are being stored in a country in which a company has no representation, and where there is inland transit within that country, from the warehouse distribution to the retailer, it may be vital to have local policies that will respond in the event of
a loss.
Added value
This is why a multinational insurer who can provide locally compliant solutions can add value. Due to their reach, multinational insurers have qualifications to identify and
understand the regulations of a particular local jurisdiction, and work within the confines of those regulations as well as regional and global sanctions, all within a centrally controlled overall program. Multinational insurers can offer, through their local resources, the ability to conduct the requisite local vetting that is needed for claim-related activities, to ensure compliance with the regulations.
Customer checklist:
- Insurance compliance
- Is non-admitted insurance allowed?
Are there financial penalties associated with non-admitted
insurance?
- What are the local premium taxes?
What other taxes may be applied (excise tax, stamp duty,
withholding tax)?
- What are the compulsory insurances?
- What compulsory cessions are required (national pools, reinsurance, etc)?
- How can premium be fairly allocated across subsidiaries
- Can claims be paid to the local subsidiary?
