Fuelled by free trade agreements, burgeoning growth in emerging countries and an ever-increasing demand for natural resources, Canadian businesses are reaching out to key markets around the world.Total exports for Canada now account for roughly 45% of our Gross Domestic Product (GDP).The pattern of trade is diversifying away from North America to key regions in Europe, Asia and South America. Less than 20% of Canadian goods and services exports were destined for non-U.S. markets in 2002. This share had increased to nearly 30% by 2009, according to the Department of Foreign Affairs and International Trade.
In light of these statistics, are brokers meeting the needs of intrepid exporters in identifying risks, discussing solutions and providing comprehensive protection? The answer is increasingly yes, but there is always room for improvement. Brokers enter a confusing new world of international exposures when they seek to provide global coverage solutions for their clients. Knowledge, expertise and experience are the critical factors in choosing the right market.
For example, if an employee of a Canadian branch office in Thailand was infected with an endemic disease, would he have to seek health care in that country? If a Canadian firm sells a product to a resident of Boston, Massachusetts over the Internet and there is a network breach, which jurisdiction’s privacy laws apply? What has to happen before a commercial policy is bound in India and Japan? (Read on to find out the answers).
RECOGNIZING INTERNATIONAL EXPOSURES
Brokers have many ways to recognize whether or not clients — especially smaller to midsized customers — have international exposures. It’s not always obvious. For example, "operations" might be interpreted to mean a one-person sales office, a physical presence designed to meet domestic regulatory requirements (such as the "Buy America" legislation, for example) or even online sales to other countries.
In particular, brokers should ask the following questions:
- Does the client sell any products over the Internet?
- Does the client travel outside Canada on business, including trade fairs or exhibitions?
- Does the client have any overseas facilities, licensing, subcontracting or joint ventures?
- Is one or more of the client’s key customers a foreign firm?
- Does the client rely on parts or supplies from a foreign company (for example, does the client have a foreign firm as a key customer)?
- Does the client bid on contracts for projects outside Canada?
- Does the client have any operations or payroll outside Canada?
- Is there an ocean cargo policy in place? A positive answer to any of these questions reveals an opportunity to address your client’s global exposures and provide protection. Finding the right coverage solutions is another challenge altogether.
Brokers should avoid several pitfalls. One is trying to patch together a policy or series of policies with complex endorsements. The insurance carrier should be able to offer worldwide coverage in a comprehensive package policy. This should also be a portfolio policy, so that one or all of the different coverage sections might be added to create a policy that fits each customer’s needs, whether that client be a small business embarking on its first foreign sales trip or a multinational company with thousands of employees.
Another challenge is to make sure your client does not unknowingly purchase duplicate liability limits or even two distinct insurance programs. A properly designed insurance solution should be coordinated by a local Canadian underwriter, yet offer cross-border and international insurance coverage in any of the regions in which the client operates. In some cases, insurance carriers may leave it up to their foreign branches to determine the details of a client’s global coverage. Check to see the involvement and input of local underwriters in coordinating insurance protection. They will often understand your client’s needs the best.
A word of caution should be mentioned about non-admitted coverage in the United States. Although clearly a need exists for non-admitted carriers with strong financial ratings, there are several advantages to placing U.S. admitted coverage with a knowledgeable, international insurer. These advantages include compliance with local laws and regulations, state-by-state licensing requirements, premium and losses paid with local currency, knowledge of legal/judicial environments in each state and favorable local tax laws.
TRULY INTERNATIONAL INSURANCE
Brokers should actively seek key elements in a truly international insurance package policy. First, a DIC/DIL (difference in conditions/difference in limits) provision should be included to cover the gaps created through local coverage requirements. For example, Mexican property insurance policies frequently have a "co-pay" clause, which means claimants must pay a percentage of the total loss over and above the deductible.A global master policy should take this local co-pay into account, with coverage granted under the DIC/DIL clause.
A global insurance solution should allow claims to be brought and settled anywhere in the world. It should also provide a policy in each of the countries in the language and customs of that country, supported by an English language master policy. And, as a matter of expertise, risk control services should be provided on a worldwide basis.
Brokers should look for some of the above "must-haves" in a quality global insurance policy. Some insurance companies are offering additional extensions of coverage. One is coverage for endemic disease and excess repatriation expense under voluntary workers compensation coverage. That means if employees are injured or sick, they can be sent to their country of origin for medical treatment. So, the answer to the question about the employee in Thailand would depend on whether this coverage is in place through a global insurance solution. Some carriers include this as part of their international coverage.
Other potential policy upgrades include enhanced casualty wordings, broadened property coverage and industry- specific wordings for segments such as oil and gas, wineries and food processors, to name a few.
The experience of the insurance carrier is one intangible factor in choosing the right market for international clients. Does it provide coverage in 130 countries around the world? Do any gaps in coverage exist due to local policy language and nuance? Would these gaps be addressed by a master global insurance policy? Does such a master policy understand the differences in legal environments, laws and regulations of the 50 U.S. states? These are good questions to ask of any market.
Take the example of a Canadian firm selling a product online to a Boston resident and experiencing a privacy/security issue. The matter would be subject to the regulations of the state of Massachusetts, which happens to have some of the strictest data privacy laws in North America. In Japan and India, premium payments must be made to the local carrier before a commercial policy is in force; this is in contrast to North America, where clients often have 60 days to pay after the policy is bound. Having this kind of knowledge and working with a trusted carrier can provide important peace of mind for the broker and the client.
Despite the global financial crisis, which put a dent in worldwide trade in 2009 and into 2010, the long-term trend is for Canadian exports to both increase and diversify. Even with the economic downturn, Canadian companies still exported more than $436 billion of goods and services to countries around the world last year.
The question for brokers is thus: how many clients are part of this growing international market? And where will you look to find the right coverage for them?