As companies expand worldwide, they often discover that each new locale has unique insurance regulations, financial rules and natural disaster vulnerabilities. Much of the onus falls on the risk manager to navigate complex but critical property insurance decisions. However, even the most diligent risk manager can overlook certain details when trying to secure the most effective insurance protection. So what gaps in multinational coverage should they watch out for?Consistency Is Key
To start, an insurance product in the global market needs to have a consistent structure and approach. That means it maintains the same level of service, claims commitment and even policy wording whether a property is in Marseilles or Milwaukee. Therefore, risk managers should dig deep to understand the needs of each location where they have operations. All too often, coverage gaps occur when there is a disconnect between global reach and local know-how in assessing insurance needs and limiting risk.
Avoid Claims Complications
The same attention also must be paid to all of a firm's local entities and subsidiaries. In a good partnership between insurer and client (and the client's broker, if there is one), it is critical to evaluate what level of risk transfer is sufficient beyond adequate coverage or simple compliance. Gaps in coverage may lead to ambiguity and uncertainty about what will be paid in the event of a loss, and that could prevent a company's prompt recovery. The last thing a risk manager needs is to discover during a crisis that there are policy gaps between local and global forms.
Benefits of Broad Coverage
Often, a corporation's overall needs and the needs of its locations farther afield are out of sync. Risk managers should insist that their insurer strive to eliminate any gaps in their products and services, which starts with the policy contract.
When the same insurance personnel are responsible for creation of the master policy as well as underlier policies, there is less chance of an unintentional shortfall of local coverage. An insurer instructed by its clients to issue policies should also have claims staff authorized to pay losses immediately. Third-party loss adjusters do not always have that level of authority, which may slow claim payment.
Insurance buyers should also be aware that, unless local coverage is maximized, difference in conditions and limits loss payments may have to be paid to the corporate headquarters. With current financial regulations, it is not always easy for corporate entities to transfer loss payments to the local entity that actually suffered the loss. This type of policy gap became very apparent after the 2011 Chilean earthquake, for example, when some properties were not appropriately insured at the local level compared to the corporations' master insurance policies. Therefore, risk managers should scrutinize policies to make sure local coverage and policy limits match potential exposure.
From the perspective of both insurer and client, regulations are generally established to protect the buyer. While an insurance policy must be written in accordance with local regulations, unnecessary gaps can be avoided when insurers, clients and regulators work together to ensure regulations are appropriately written and fairly enforced.
Know What You Don't Know
Risk managers must also understand their foreign facilities. How vulnerable are storage areas? How is inventory stored? What are the vulnerabilities particular to a site, whether in location and building materials or weak points in equipment? Have the upstream and downstream vulnerabilities been evaluated? All of these must be considered before the policy is written to get the most from insurance coverage.
Understanding the details of all product lines that flow throughout a property requires careful assessment. A policy should take not just the building, grounds and equipment into account, but also the value of individual product lines and the financial risk of business interruption. A tire company, for example, may have one line of tires that, if production was disrupted, would present a greater loss of revenue than the others. Risk managers need to understand that exposure.
Most risk managers operate alone or in a small group, so dedicated local services and engineering expertise are critical to implement effective risk strategies. An insurer with knowledge of a company's specific property can help the buyer understand potential losses and determine what should be covered and paid in the event of a crisis-in addition to developing necessary preventive measures to avoid loss in the first place. Every insured has unique risk management and risk transfer strategies, so policy language should reflect these nuances.
Nicholas Batten is vice president and manager of global services at FM Global.