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Customers with international elements – what to consider

At a glance

  • In today’s globalised world, it is becoming rare to find organisations without some element of international exposure
  • While introducing international elements can provide opportunities for growth, it also opens up fresh risk
  • From changing risk exposures to language barriers, we explore what organisations should consider when expanding internationally

Whether establishing overseas operations or exporting goods, in today’s globalised world it is rare to find an organisation without some degree of international exposure.

Greater migration and mobility, the Internet, deregulation and transportation advances have contributed to a steady increase in organisations of all shapes and sizes looking for opportunities overseas.

While introducing activities with an international aspect can open new doors, there are a number of insurance and compliance questions that need to first be addressed.

We explore some of the main considerations for customers and brokers, and how Zurich can provide support.

How can risk exposures change?

According to Mark Pennock, Head of Property Underwriting, Commercial Insurance UK: “One of the biggest changes when customers move internationally is the introduction of natural catastrophes. In the UK, these are typically limited to flooding, however with expansion into territories such as Asia Pacific or the US, we are now looking at everything from earthquakes to hurricanes, cyclones and tornados.

“Customers need to understand the nature of the territory they are getting into. This includes the natural catastrophe element, but should also involve building a picture of the local infrastructure. For example, a customer might be sited near the fire brigade, but how quickly can they be expected to respond?”

Supply chain risk is another area that needs to be carefully considered. According to Mark: “While not all customers are expanding internationally, their supply chains might be.”

Sprawling international supply chains are frequently necessary, but they can introduce new elements of risk. What are the contingency plans if one link in the chain gets broken?

The 2015 explosions at Tianjin’s port (one of the world’s largest) caused major supply chain disruptions for months. Blockages prevented the delivery of raw materials to many major factories in China, with goods heading in the other direction similarly affected.

It is important that customers understand the risk environment and the legal and practical issues involved with international growth. Zurich’s Risk Room, available for both customers and brokers, is an invaluable tool for modelling the political, infrastructure and natural risks involved with expansion into any of 174 countries.

What regulatory and legislative differences exist?

Managing differences in regulation is perhaps the most complex issue for customers and brokers to negotiate when international expansion is being considered.

It is essential to establish what insurance taxes and charges need to be paid, and how claims will be settled in a foreign territory. Most countries will require certain insurances by law. This can include third party liability cover for cars, exposures related to chemicals or employers’ liability. The important thing to bear in mind is that each country will be different.

While many exposures will be similar overseas as they are in the UK, there can exist substantial differences in claims culture, taxation and legal systems. Relevant legal systems may be well established in some territories, but this cannot be taken as a given.

The more countries involved, the more the complications mount. As Brendan Donlon, International Programme Manager, Real Estate at Zurich, explains: “One of the trickiest things for customers and brokers is tracking change. If a customer has multiple exposures in different states and countries, then keeping up to date with regulatory challenges is incredibly difficult.”

In addition to the regulatory and taxation disparities international expansion reveals, political risks also need to be considered. Of particular importance are sanctions. As Brendan points out, “not only are there US, UN and EU sanctions to consider, following Brexit, there are likely to be more UK-specific sanctions.

“With countries like Myanmar and Iran increasingly appearing in customer supply chains, an understanding of where and how business and insurance can be transacted is very important.”

Zurich’s Multinational Insurance Application (Zurich MIA) is a global regulatory and tax database, designed to help both customers and brokers to stay compliant.

Do language barriers pose a risk?

“One of the biggest challenges associated with international expansion is the language barrier,” explains Mark. As soon as English is not the first language for everyone involved in the process, the chances of a misunderstanding related to policy language multiplies.

According to Mark: “There can even be difficulties between English-speaking countries. One example involved different understandings of the word ‘mould’, which was taken to mean a type of fungus in Canada and an implement to cast shapes in the UK.”

Even these seemingly minor misunderstandings, if not recognised early, can cause issues down the line. Differences in insurance terminology may also exist between territories with the same first language.

In all cases, it is important to establish consistent, standardised wording internationally, as well as translating policies and documents into local languages.

How to mitigate the risks?

“It is important that customers come to Zurich at an early stage of the planning process,” explains Brendan.

There is no one-size-fits-all approach for managing international risk. However, by involving insurers and brokers at an early stage, potential risks can be identified and mitigated before they become major issues.

For more information on the issues discussed in this article, please get in touch with your local Zurich contact.

You can also find out more and access helpful guides and insight with our new UnderinsuranceFire and Flood Risk Resources.

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