“Wing and a Prayer”
- Relates to international liability exposure.
- Cultures and judicial systems in other countries make underwriting liability insurance across boarders a difficult and highly uncertain proposition.
- Foreign liability exposure even more remote than domestic.
- To minimize risk, uw should do all research on culture, judicial system and other characteristics of countries
Property Coverage, International Exposure
- International property exposure is more serious than liability exposure.
- Concerns about direct and indirect loss.
- Threats of loss in property more immediate.
Other Factors, International Exposure
- In some foreign countries, broker plays a more active and controlling role in the account. Following a loss will assign an adjuster, and negotiate on behalf of the insured.
- UW must determine if fraud is a concern in a foreign country.
UW must use the power of why and their curiosity when underwriting an international exposure
Assessing the International Risk: Resources
- The broker
- Personal resources
- The risk manager
- Reinsurers and Multinational Insurers
The Broker
Broker should know the cultural, economic and other considerations in underwriting risk in a foreign country.
Personal Resources
- UW needs to understand local conditions.
- Can look at people, literature, web content.
- Library, internet.
- WTO, EU websites.
- Westlaw
- Major insurance broker websites
- Governments and their legislation
- Insurance trade journals
The Risk Manager
- Responsible for being insurance, and managing all aspects of the insureds exposure, both foreign and domestic.
- Is a valuable ally for the need of information.
- Calibre of risk manager reflects the quality of risk.
Reinsurers and Multinational Insurers
- Often have offices worldwide and can advise UW of rules and regulations that will influence their decision on an international risk.
- May not be shared freely due to competitive reasons.
Assessing the International Risk: Specific conditions
UW could be influenced by the following considerations:
- Corporate structure of his/her own company
- Foreign insurance regulations
- Other legal considerations
- Exposures
- Administration
- Pricing
- Foreign insurer insolvency.
The Insurer’s Corporate Structure
- UW must know what his/her insurer can and cannot do within the corporate structure.
Should know:
- Insurer’s policies and procedures for handling account with foreign exposure
- Whether insurer has a parent company
- If partner company is based in Canada or elsewhere
- Whether the insurer can call on that subsidiary to front for one of its insureds
- Political Sanctions
- Does it fit in reinsurance treaty or is it excluded?
Front
An insurer that issues a policy with the intention of transferring most or all of the exposure by reinsurance or others means to a reinsurer or other insurer not licensed in the jurisdiction of the fronting insurer.
Foreign Insurance Regulations
- Freedom to underwrite varies between countries.
- Variations in regulation between jurisdictions.
- Does the jurisdiction allow foreign, not admitted insurers to offer insurance within its borders? Or, do they have to be admitted?
- Can they only be on admitted paper? The need for front arises from the need for admitted paper.
- Fronting has potential influences on premium and risk
- Broker can help arrange a front
- Is it written in a different local language?
- Collection of premium may be troublesome
Admitted Insurer
An insurer licensed or approved by regulatory authorities to do business in a given jurisdiction.
Admitted Paper
Insurance written on locally approved policy forms by a licensed, registered, or authorized insurer.
Non-Admitted Paper
Insurance policy written by a foreign in surer from a remote location.
Foreign Laws and Legal Systems
- More general obstacles.
- Concern with the implications local laws, or the absence of, have for claims under the policy.
- Insured should comply with local laws.
- Broker can help with local laws.
- Local laws may prohibit some restrictions (i.e. minimum limits different from domestic policy in the Philippines)
- Need to be aware of environmental liability and hazards
Assessing Foreign Exposures
- Natural hazards should be familiar.
- Differing international standards.
- UW influenced by general facts about foreign practice.
- Inspections can be arranged from a source in the foreign location.
- Different standards of exposure in different parts of the world.
- UW must understand the political climate - i.e. civil unrest? constant regime changes?
- UW must understand the workforce and any restrictions in hiring personnel.
Administering Policies for Foreign Risks
- International UW more difficult, more timely and more steps.
Pricing the Foreign Exposure
- Should actuarial or other basis for rate be considered?
- Currency considerations
- Double limits with reinsurance
- How is insurance viewed in that culture
Foreign Insurers and the Risk of Insolvency
- Possibility of drop down exposure
- UW should review wording to insure no drop down exposure
