STRUCTURING MULTINATIONAL INSURANCE
PROGRAMS FOR THE MIDDLE MARKET
Sponsored by The Hartford
Multinational insurance programs were once reserved for the
largest of companies, those typically found in the Fortune 500 or
Fortune 1000. But the world has become a much smaller place,
and globalization is now a necessity for many small and mid-
sized companies to remain competitive.
Recent research from The Hartford shows that 80 percent of
mid- to large-size companies have some degree of multinational
exposure.1 As more businesses pursue growth opportunities
worldwide, the need for coordinated multinational insurance
solutions has never been greater.
Global- business activities can vary significantly company to
company. From strictly employee travel overseas to owned
manufacturing plants with sales and distribution centers in
multiple countries, risks and exposure to loss differ dramatically.
It is essential, therefore, when developing a multinational
insurance program, to develop a comprehensive understanding
of what a business is doing, what drives it, and what risks are present. Only
after fully understanding a company’s exposures and risk appetite can there
be a discussion about how insurance can help mitigate risk or whether other
mechanisms can help finance potential loss.
1
The Hartford, “A World of Opportunity is Emerging. Seize it. 2017 Business Monitor.” (September 2017),
https://s0.hfdstatic.com/sites/the_hartford/files/multinational-executive-summary.pdf
Published and Distributed by
Businesses with international exposures experience many of
the same insurance and risk-management challenges as they do
RECENT RESEARCH
domestically, but with added layers of difficulty. The worldwide
FROM THE regulatory environment continues to evolve, and insurance
HARTFORD SHOWS and tax authorities around the globe are paying more attention
to insurance-related transactions. Compliance challenges are
THAT 80 PERCENT created and can result in regulatory enforcement actions and
OF MID- TO LARGE- unwanted tax consequences. Additionally, customs and language
barriers, time zones, and extended lines of communication can
SIZE COMPANIES
make activities such as risk management, loss control, and claims
HAVE SOME DEGREE management more problematic.
OF MULTINATIONAL A multinational insurance program needs to take all of this
EXPOSURE. into consideration. Every country presents a unique set of
issues; there is no one size fits all approach, therefore, programs
should be designed to respond in a way that is consistent
with a company’s objectives no matter where in the world an
exposure exists or a loss may occur. The task can seem daunting.
Fortunately, there are now insurers bringing these types of sophisticated
solutions to the middle market. These insurers understand the importance of
putting a structure in place to match a company’s risk-finance strategy and risk-
management needs.

CORPORATE RISK FINANCE PLANS – HOW DO
YOU WANT INSURANCE TO RESPOND TO A LOSS?
Understanding the risk-finance strategy of a company
begins with asking the right questions. However,
conversations often only scratch the surface. Agents and
brokers will inquire about a company’s business activity
abroad but often fail to dive deeper into how the insured
would like insurance to respond to a loss. According to
Alfred Bergbauer, head of multinational insurance at
The Hartford, there needs to be a dialogue around risk
EXPOSURE EXISTS OR A
management, assumption of risk and risk finance strategy to
demonstrate additional value to the insured. LOSS MAY OCCUR.
“It’s as simple as saying, ‘You have an operation in China,
you have a $100 million property, and you’ve suffered a total
loss at that location, what do you want to do?’” Bergbauer explained. “Do you
want to take it as a business loss in the local company and finance it off of the
balance sheet? Do you want your insurance company to investigate and adjust,
represent you, engage in subrogation if necessary, and pay the claim locally? Or,
do you want take the balance sheet hit and get reimbursed on a financial interest
basis by your insurance company back in the United States?”
“It becomes a conversation of risk-finance strategy—income statement, balance
sheet, and profit/loss management. “
According to Bergbauer, this level of dialogue should be the “absolute starting
point.” Far too often, however, the focus is on premium rather than structure and
program performance. This can lead to unexpected negative consequences post-
loss (regulatory, tax, legal, etc.) when it is too late.
The Hartford recently conducted research which resulted in some eye-opening
statistics in support of this point. The purpose of the research was to identify
current international-risk exposure trends among mid-size to large businesses.
2
The Hartford, “A World of Opportunity is Emerging. Seize it. 2017 Business Monitor.” (September 2017),
https://s0.hfdstatic.com/sites/the_hartford/files/multinational-executive-summary.pdf
STRUCTURING MULTINATIONAL INSURANCE PROGRAMS FOR THE MIDDLE MARKET  |  2
What it found was that while 80 percent of the respondents
PROGRAMS SHOULD BE said they have some aspect of international business activity
and corresponding risk, a substantial 41 percent said they
DESIGNED TO RESPOND IN have never had a conversation with their broker or agent
A WAY THAT IS CONSISTENT about multinational insurance options available to them.2
This suggests that many mid- to large-size companies are not
WITH A COMPANY’S
properly insuring international exposures.
OBJECTIVES NO MATTER
“The grasp risk managers and chief financial officers often
WHERE IN THE WORLD AN
have on multinational insurance is on the cost side and not on
the usage side,” said Bergbauer. “When we are able to bring
a dialogue around usage it changes the conversation and
perception around insurance to a financial, income statement,
balance sheet, and cash flow-management tool. This really
starts to unleash some value and forces a different kind of
dialogue around risk management, one that’s based around
assumption of risk which leads to value.”
In short, focusing on premium size and not the outcome of how a policy will
be used in the event of a loss – even with companies that have smaller package
policy premiums— can lead to unwanted surprises to the detriment of the
insured.
TAX MANAGEMENT AND THE TAX IMPLICATIONS
Conducting business across country borders has become significantly easier
in recent decades, even for relatively small companies. The global economy
we experience today has been driven, at least in part, by technological
advancements in areas such as information technology, transportation, and
communication, as well as efforts to decrease trade barriers by many countries.
Yet these developments have not crossed over to insurance regulatory and tax
structures. There remains no global harmonized insurance tax code, regulation,
 STRUCTURING MULTINATIONAL INSURANCE PROGRAMS FOR THE MIDDLE MARKET  |  3
or legal code. As a result, multinational companies benefit from
insurance programs that bring consistency and commonality
across the various countries in which they have exposures. MULTINATIONAL
COMPANIES BENEFIT
There are several layers of sophistication necessary to achieve
this cross border consistency. One layer is around tax issues FROM INSURANCE
and implications, which can vary depending on a company’s
PROGRAMS THAT
risk finance approach.
BRING CONSISTENCY
“Many insurers provide coverage overseas by modifying
AND COMMONALITY
the coverage territory to anywhere in the world. This
gives them an insurance policy in place in the US with ACROSS THE VARIOUS
a jurisdiction that says worldwide. So the policy will
COUNTRIES IN
respond to losses anywhere in the world, but the details
beyond that are absolutely critical and a lot of insureds WHICH THEY HAVE
do not understand the subtleties of covering risk from EXPOSURES.
a US master policy on an unlicensed basis overseas,”
said Bergbauer. “Amounts paid to a US taxpayer for a
loss that occurred outside the US may constitute taxable
income to the taxpayer and the taxpayer may not have
an offsetting deduction related to the loss, thus creating
the risk that a US corporate taxpayer may owe taxes (at a
marginal rate of 21%) on the claim payment.”
Insurance programs should be structured in a way that will indemnify or finance
losses at various locations around the world without creating significant tax
liabilities. As illustrated above, tax liabilities most frequently can occur when
a claim payment is made in a different country than where the claim occurred.
Consultation with tax counsel to understand issues and exposure management
options is recommended.
REGULATORY AND COMPLIANCE ISSUES
Aside from compulsory insurance such as auto and workers compensation,
every company has the option to finance unexpected losses however they see fit.
Property insurance is a perfect example: if a company has fixed
assets in other countries there is no rule that says it is required
to purchase insurance. The company may instead have other
plans for financing the loss, such as through its balance sheet or
at the corporate level. However, if a company decides insurance
is the best strategy, there are rules and regulations governing
how it can be used in different countries.
In the past, a global master policy in the US, using policy forms
with wording and coverage that was familiar, combined with
the occasional local policy overseas to manage local tax and
regulatory requirements, was considered sufficient.
This is changing as countries began to develop and enforce
insurance regulatory and tax schemes with a view toward
multinational accounts covered under a global policy issued
by a an insurer not licensed and subject to the payment
of premium taxes. In such cases, regulators are assessing
premium taxes to the insured for the allocable share of the cost
of their coverage provided to the local insured.
“As countries around the world started to look into the drivers of economic
development they began to realize that when insurers operate offshore and
insure risk in their country they are deprived of insurance premium tax as well
as the premium that is invested by those insurers in their financial markets,” said
Bergbauer. “They realized this is really depriving their nation of a foundation
that makes an economy strong.”
Today, most countries require insurance policies to be issued by a local insurer
licensed in that country – so-called admitted insurance. If for instance a claim
occurs in a country that requires admitted insurance, and the business is insured
through an unlicensed carrier on a non-admitted basis, the company may not be
able to receive claim monies from the non-admitted policy and could potentially
face substantial fines and penalties.

But there are some countries that will allow an insured to
purchase non-admitted insurance. “This is where the complexity
comes in. You can look at a database and it will say that non-
admitted insurance is allowed. But when you dig in behind all
the details there are additional paragraphs that explain the
terms in which you can engage in non-admitted insurance,” said
Bergbauer. “So it can get complicated.”
The concept of non-admitted insurance allows an insured to
engage with an insurer outside the jurisdiction where the risk
is located, and place a policy. However, the insured may be
required to declare the policy to the regulators and engage a
fiscal representative to take a premium allocation within that
country that represents a fair and reasonable premium for the
risk. They must then pay the appropriate non admitted premium
taxes and fees to the local regulatory authority. Failure to do so
can result in fees and/or penalties and even incarceration in the
most severe case as noted below.
To ensure compliance, many countries have internal audit teams
within insurance regulatory and tax authorities. The teams
will conduct spot audits on insureds, brokers, and insurance
companies, looking for evidence of unlicensed insurance.
“When the auditors find violators they can fine the insurer, fine the broker,
or halt the business of the insured,” said Bergbauer. “South Africa provides
the most dramatic example. They can actually incarcerate the directors of a
company. You can actually go to jail for breaking the insurance regulatory
requirements.”
In situations where countries share borders, or have substantial common trade,
there are frequently bi-lateral, or multi-lateral, agreements in place that enable
them to join forces in performing audits and fining violators of their cross-
border insurance laws.
STRUCTURING MULTINATIONAL INSURANCE PROGRAMS FOR THE MIDDLE MARKET  |  4
“The stakes are high,” said Bergbauer. “Every day across
continental Europe, Latin America, North America, and the
“EVERY DAY ACROSS Asia Pacific there are regulatory audits going on to try and find
CONTINENTAL violators of insurance regulation.”
EUROPE, LATIN
THE BENEFITS OF A CONTROLLED MASTER
AMERICA, NORTH
PROGRAM (CMP) WITH ONE CARRIER
AMERICA, AND THE A controlled master program is often the most effective way to
ASIA PACIFIC THERE insure global exposures. It brings consistency across multiple
countries that have risk by combining local policies with a
ARE REGULATORY
global master policy issued in the company’s home nation.
AUDITS GOING It works by having the master policy, which is purchased at
the corporate level, supplement local admitted policies with
ON TO TRY AND
Difference in Conditions (DIC)/Difference in Limits (DIL)
FIND VIOLATORS coverage. This provides the local admitted policy with expanded
coverage as the master policy will typically have broader terms,
OF INSURANCE
conditions, and/or limits.
REGULATION.”
The consistency offered by a CMP with one insurer has
many benefits. For example, whether it is property or liability
insurance, one insurer can take a broad look at the global
risk of the company and help to understand the contractual
requirements the company might be subject to in each country. This can ensure
consistent treatment of terms, conditions and limits to match contractual
obligations anywhere in the world.
Another coverage benefit example is consistent protection against global
product risk.
“When we look at product distribution, it’s not quite as easy to track as it was
20 to 30 years ago, before the advent of the internet. You can call yourself a
domestic company in the U.S. but still distribute products anywhere in the world
through a website,” said Bergbauer. “So being able to work with an insurer that
can represent a company globally is more critical today than ever before.”
 STRUCTURING MULTINATIONAL INSURANCE PROGRAMS FOR THE MIDDLE MARKET  |  5

Business interruption (BI) risk illustrates yet another protected risks that feel sprinklers are more of a
benefit of uniform protection with a single carrier. disadvantage than an advantage,” said Bergbauer. “So
Consider the BI exposure of a company that has “BUSINESS INTERRUPTION understanding the context of risk within the market and
manufacturing operations in multiple countries. If ACROSS BORDERS CAN GET operation is critical.”
operations go down in one of the countries, it could
PRETTY COMPLICATED AND With regards to claims management, a CMP with a single
financially impact operations in the other countries due
insurer provides the robust claims capability of a large
to an inability to manufacture, distribute, and/or sell HAVING A SINGLE INSURER THAT
sophisticated insurance company with a local presence
products.
CAN LOOK AT THE AGGREGATION and knowledge of the local situation.
“If you have one global insurer, that carrier can step back, OF ACTIVITIES IS HELPFUL.” “I think that claims advocacy in the middle of a loss is
look at the global risk, assess the business interruption
so important to provide to our clients,” said Bergbauer.
loss and work with the company to help pay a claim,” said
“If you have a single insurer that has a robust claims
Bergbauer. “Business interruption across borders can get
capability, you have this local translation, globally, that
pretty complicated and having a single insurer that can
you would never have if you bought insurance on a one off country basis.”
look at the aggregation of activities is helpful.”
In closing, a simple way to remember key benefits of a CMP is the four C’s:
Bergbauer continued, “What I’ve seen in my past business activities is that
when you have business interruption or contingent business interruption risk,
insureds who buy insurance programs in a fragmented, piecemeal manner are Coverage –Adequate and appropriate for the exposures across the
often disappointed. They’ll have a loss and multiple insurers will say that’s not client’s global operation
my loss, that’s the other insurer’s loss.”
Claims— A consistent treatment of claims that takes into
In addition to providing consistency across multiple countries that have risk, an consideration the interaction of business operations across borders.
integrated global program with a leading multinational insurer provides access A single global insurer can also provide a comprehensive report on
to experts in risk engineering and loss control, and claims management. These claims activities.
experts work together to understand a company’s global risk profile and provide
seamless integrated solutions. Cost – CMP programs can be more cost efficient than other options as
the insurer can determine price across all geographies that the client
Risk engineering and loss prevention capabilities within a CMP provide the operates in.
same expertise as domestic programs but with local knowledge of regulatory
and business environments. Having engineers that are able to translate the local Compliance—developing an insurance program that is compliant with
practice into context of risk assumption back to underwriting at the home office local laws and regulations can help reduce the exposure to regulatory
level is important. compliance risk and ensure that an insurance program will respond as
the insured intends it to.
Take sprinkler usage as an example. “Outside the U.S. the philosophy around
sprinkler usage is different. There are many countries, and many highly
 STRUCTURING MULTINATIONAL INSURANCE PROGRAMS FOR THE MIDDLE MARKET  |  6
CONCLUSION
US companies of all sizes who establish operations worldwide will find new
exposures ranging from operational, financial, strategic, hazard, to regulatory.
These companies benefit greatly from multinational insurance programs
designed to respond in a way that is consistent with their objectives no matter
where in the world a loss occurs.
But the thought of developing an insurance program in line with a company’s
risk-finance strategy and risk-management needs—that complies with local
insurance regulations, and provides consistent coverage, loss control, claims
services—can seem daunting even for the largest, most sophisticated insureds.
Fortunately, there are now insurers bringing solutions to the middle market.
“By bringing multinational capabilities to the middle market, we’re providing
solutions to a much broader segment of the US business community than has
ever been done before,” said Bergbauer. “The stakes are high and it is our goal to
help our clients put in place multinational insurance programs that match their
strategies and needs.”
“IF YOU HAVE A SINGLE INSURER THAT HAS A ROBUST CLAIMS
CAPABILITY, YOU HAVE THIS LOCAL TRANSLATION, GLOBALLY,
THAT YOU WOULD NEVER HAVE IF YOU BOUGHT INSURANCE
ON A ONE OFF COUNTRY BASIS.”
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