For companies working across multiple countries and regions, it’s unlikely to be a one-size-fits-all approach for insurance.
Whether it’s contractors expanding beyond their home market or the need for international expertise on specialist projects, the demand for insurance programmes that can cope with multiple territories is growing.
However, our advice is always to consider each new territory individually. Five of the most important points to consider are:
Beware of local regulations
In some countries, companies may have difficulties applying their preferred programme of insurance. In Brazil, for example, only locally registered forms of policies are accepted.
The challenge is to find a solution that meets the individual risk management approaches of all stakeholders. A simple choice would be to go with a local solution.
The alternative would be a customised policy. The size of the contract and its risk profile should inform the decision.
Sometimes it can be possible to demonstrate preferred insurance programmes do meet local needs.
For example, we worked with the National Infrastructure Agency in Colombia to evidence how European form policies met the requirements of Fourth Generation (4G) contracts.
Where is the risk manager?
With knowledge about the risk profiles and risk acceptance levels for each territory in hand, an organisation can decide whether a multi- territory policy is viable.
It may be a case of finding the lowest common denominator and arranging a programme that meets the needs of the least demanding exposure and simply looking to ‘top up’ cover for specific contracts and locations, or conversely applying best practice throughout.
However, this may not be cost- effective to meet stakeholder needs.
Though we see a trend to manage risk from head office, an alternative approach is to have different risk managers operating independently in each country.
This may lead to lower insurance policy costs by aligning with local market conditions.
However, having multiple different risk profiles for a global operation may mean that a clear picture of corporate risk protection can be difficult to provide for the board of directors.
Fit the form of contract
Insurance policies must dovetail with the form of contract being employed. It’s also important to understand that modifications to the standard forms will impact on the balance of risk and the cover needed.
If the insurance programme and contract form don’t work together, options include buying stand-alone insurance or creating a solution to overcome any differences.
Involving a risk adviser in the contract review process should ensure any issues are addressed early.
Know your partners
Particularly in joint ventures, it’s vital the partners understand the others’ risk appetites.
Early conversations should address who is responsible for which parts of the work, which risks, and who is insuring them.
We see an increasing trend for owner- controlled insurance programmes (OCIP). Here, good communication between principal and contractor is vital; otherwise there is a risk that the OCIP will not adequately cover the contractor’s risks.
On one of our client’s projects the principal decided, after preferred bidder stage, to switch from contractor-controlled insurance to an OCIP. We worked with both parties to highlight the difference between the cover from the OCIP and the planned cover by our client to deliver solutions to bridge gaps.
Consider global supply chains
Another trend is for elements of a project to be fabricated away from site. Where this involves international suppliers there could be difficulties around how policies are applied.
For example, a project in Australia included elements that were manufactured and shipped from Spain.
Government- backed insurance through the Australian Reinsurance Pool Corporation (ARPC) provides terrorism cover for items fabricated in Australia but not elsewhere. In such cases, risk advisers can source a wrap-around solution to address those gaps.
For more information contact Stephen Leeming, Partner on +44 (0)20 7528 4606