If your business is expanding into new countries, it’s important that you have the right insurance in place. A global policy can give you consistent and robust coverage, wherever you operate in the world, allowing you to grow with confidence. Here’s what you need to know to get started.
When a Local Admitted Policy is best
Your existing insurance policy may already provide global cover for you and your subsidiaries. However, you could be required to purchase a Local Admitted Policy (LAP). The main reasons for this are regulatory compliance and ease of local trading.
Not all countries allow coverage under a global policy. Laws in some territories require in-country exposures to be insured by locally authorised insurers that are licensed to conduct business in that territory. These are called Local Admitted Policies (LAPs).
How LAPs work
All countries have different standards, rules, and regulations that must be adhered to; however, these may not be of the same standard as your parent country. LAPs are designed to be a “good local standard” to ensure the wording meets local compliance requirements. They act as policies of first response for that country or entity.
Of particular importance to companies expanding into new territories is Directors’ and Officers’ Liability, which is designed to protect you in the event a subsidiary is named in a legal dispute. This policy works on a stand-alone basis but in combination with your global program to avoid coverage disputes. These policies will be part of the limit of your overall global program referred to as a “tie-in” limit. In the event of a claim, these policies respond just as your global program would and the local insurer negotiates, handles, and pays any valid claim to the local entity.
Another option: Financial Interest Clause (FINC)
If a global insurer is not licensed in the overseas jurisdiction and no LAP is in place, an alternative is to include a Financial Interest Clause (FINC) in your global policy. This allows insurers to pay claims to the parent company.
There are, however, some important considerations:
- Any claim payment made to the parent entity that is passed on to the subsidiary could be taxed as corporate income by the subsidiary’s tax authority, requiring the parent to provide further funds to cover the loss after tax.
- Differences in exchange rates between the country where the claim occurs and the country of the parent entity.
Having an LAP in place helps avoid these considerations. It also provides access to local claims expertise, using the local authorised insurer who is familiar with the culture and jurisdiction.
However, the FINC may be more beneficial to your company than an LAP if:
- the law does not require LAPs,
- there is minimal local servicing required, and
- the local entity is financially capable of handling claims without assistance from the parent entity.
There are several ways to structure your global insurance program, depending on your business’ exposures, regions, and preferences. We are proud to be a true partner, seeing your business holistically and pooling our collective expertise to deliver genuine value. Feel free to reach out to discuss the right solution for your business’ needs.
Client Manager – Commercial Asia