The laws of a country generally apply to companies operating within its borders. Global policies are generally transacted entirely within the home country of the insurer and the multinational. During the solicitation, negotiation and binding of the global policy, the insurer does not undertake activities outside the home country. Moreover, the insurer underwriting the policy is generally not licensed or conducting its insurance business outside its home country, and is thus likely entirely outside the purview of foreign regulation. Simply covering potential exposures, such as people or legal liability, in other countries without undertaking activities in those countries does not by itself subject an insurer to regulation in those countries.
While an insurer may be able to consummate a global policy solely from its home country, it may not be able to provide essential insurance-related services locally, because it is neither licensed nor conducting business outside of its home country. It may be prohibited by local law from providing claim services or making claim payments locally. Even if it is not prohibited, a global insurer may refuse to undertake these activities in foreign countries so as to avoid creating a nexus that could subject it to legal or regulatory scrutiny in those countries.
The fact that an insurer on a global policy may be unwilling or unable in some cases to adjust or pay claims locally is a universal concern for many types of insurance. Consider how this might play out:
A multinational’s Southeast Asian subsidiary owns a factory that manufactures widgets. A chemical explosion causes significant damage to the facility, destroying inventory. While it is too soon to quantify the extent of the loss, a group of loss control experts, engineers, and investigators will be needed to conduct forensic analyses and facilitate the release of insurance proceeds vital to the local operation’s financial survival. The factory does not have a local property policy in place. Rather, coverage for the loss is being sought under a global property policy that was negotiated and purchased by the parent company in Australia and issued by an insurer licensed and operating only in Australia. Because the carrier’s license and operations are confined to Australia, it may not be able to undertake any claims-related activities in Southeast Asia or retain a third-party to do so either. The subsidiary may be left to service the claim itself, locating and engaging all necessary engineers, adjusters and experts, in-country or elsewhere, to investigate, analyse and adjust the property damage and time element aspects of its loss.
Additionally, as a result of the explosion 25 individuals sustain bodily injuries, many of them severe. They are suing the subsidiary, alleging negligence in maintaining the factory in a reasonably safe manner.
Here again, the factory does not have a local policy in place to respond to these allegations. Instead, coverage will be sought under the parent company’s global liability policy, also negotiated and purchased in Australia and issued by the same insurer.
Once again, the insurer may not be able to undertake any local claims-related activities or retain a third-party to do so. The subsidiary may need to retain local counsel to defend these claims. Moreover, because of the country’s underdeveloped legal system, the subsidiary is likely to have difficulty identifying and retaining appropriate counsel. Due to conflicts of interest and other legal considerations, multiple law firms may need to be retained.
In summary, due to limitations on the ability of a global insurer to respond locally, a multinational and its subsidiaries may be in the unenviable position of responding to claims on their own. The best way to ensure that a carrier will manage losses and claims locally is to have local policies issued by a global carrier’s local affiliates as part of a Controlled Master Program.
