Companies moving into international markets could be exposed to risks not insured under domestic policies
In the past 10 years, it has become much easier for U.S. companies to venture into the global marketplace. Advances in e-commerce have made it more convenient for companies to sell products and services over the Internet. Trade barriers have fallen and, as a result, business relationships — even for a small or midsize company — have become more global, stretching sellers, buyers and supply chains as never before.
Travel to foreign countries has become much more routine, especially in support of these new business relationships. In addition, a continued decline in the value of the dollar has made U.S. goods more affordable and increasingly more attractive in the overseas markets.
Although the number of U.S. companies exporting products overseas has risen 14 percent over the last 9 years, the volume of sales has increased 37 percent, from $937 billion in 1997 to $1.28 trillion in 2005, according to Census Bureau statistics.
The growth is not limited to the Fortune 500 companies; emerging multinational companies are also contributing to this trend. Emerging multinational companies typically have fewer than 100 employees and have not yet broken into the ranks of the multimillion-dollar businesses. They may be manufacturers or distributors selling products in foreign markets. Or they may be law firms, accountants, consultants, engineering firms, or even insurance agents providing professional services to foreign clients. They could even be importers.
As companies begin to expand into international markets, however, they also expose themselves to risks that may not be insured under their standard domestic insurance policies. A common misconception for these newer entrants into the global marketplace is that their domestic insurance program will respond to their foreign exposures. Their domestic policies, however, may not provide insurance for many of the risks that a company faces overseas. These companies need more specialized insurance to meet their growing needs, but because they do not yet have a physical presence in a foreign country, these companies do not need the more extensive insurance that is provided under a controlled master program.
An “exporters” insurance product can provide these emerging global companies with coverages not available under their domestic policies and yet can be tailored for a growing international company. Coverages that are typically provided under these exporters policies include foreign general liability, personal property, foreign voluntary workers’ compensation, commercial automobile liability, ocean cargo, travel accident, kidnap/ransom and extortion and political risk.
The best option for exporters is a more flexible approach with a policy that is modular in structure, so that companies can purchase insurance to meet their individual needs. A company that has employees traveling overseas, for instance, but no foreign sales, can purchase foreign voluntary workers’ compensation along with premises liability and commercial automobile liability, but may choose not to purchase personal property or political risk insurance. It is an efficient and cost-effective product that allows these companies to protect their assets, products and employees and it is a springboard for them as they grow and expand into international markets.
By starting a conversation about a company’s international activities, agents can get a foot in the door with prospective clients and strengthen their relationships with existing clients. One way to get started is by checking a company’s Web site to get a better understanding of the scope of the company’s operations, including information about any named insureds that are outside the United States.
Even if an agent has never broached the subject of international insurance with clients or prospects, obtaining a quotation for exporters insurance is simple. Agents can begin with some basic but specific questions about the exposures the customer may have such as:
- Do you sell any products or provide any services outside the United States?
- Do you import any materials from outside the United States?
- Do any of your employees travel on business outside the United States?
- Do you have any joint ventures or partnerships outside the United States?
If a company answers yes to any of these questions, then it may need a specialized insurance product designed specifically for the emerging multinational company.
The most common insurance products purchased by companies that have goods, services or employees traveling overseas are: foreign general liability and foreign voluntary workers’ compensation.
Foreign general liability insures against bodily injury or property damage losses arising from a product the customer makes, sells or distributes overseas. With this insurance, companies are protected from product liability claims that occur outside the United States and Canada. With a separate foreign general liability placement, they have a separate tower of limits, and therefore any foreign claims will not erode the general liability annual aggregate limit under their domestic program.
While an alternative solution may be to globalize their domestic policies, this can prove to be a costly and time-consuming process, and in many cases, the insurance simply may not be available.
Domestic policies, for instance, may not:
- Provide coverage for personal property, such as salespersons’ samples outside the United States or Canada;
- Provide workers’ compensation coverage for employees when they are traveling outside of the United States and are not on company time; or
- Provide product liability coverage for lawsuits brought in foreign jurisdictions.
Foreign voluntary workers’ compensation insurance, meanwhile, protects a firm’s U.S. employees while traveling outside the United States and Canada, including 24/7 medical assistance services.
A further benefit to purchasing separate foreign insurance may be realized in the form of a cost savings. By breaking out the foreign sales and obtaining a separate foreign general liability policy, the buyer may gain the benefit of more favorable pricing for their foreign liability exposures. Any company that sends employees on business trips to foreign countries or sells products or services to clients in foreign countries runs the risk of a loss. While their domestic policies may provide some limited protection, these emerging multinationals may be surprised to learn that some risks may not be insured by these policies. Also, when considering a specialized insurance product for exporters, agents and clients should look for an insurer that can also offer top-notch claims knowledge and service.
Kathleen S. Ellis is a senior vice president of Chubb & Son, and manager of Multinational Risk Group – Global Accounts.