Marine Insurance: Challenges and · PDF file©D&RM P r e s e n t a t i o n s 1/31/2011...

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Marine Insurance: Challenges andOpportunities

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1/31/2011 2Marine Insurance: Challenges and Opportunities

Disclaimer

The material in this program is designed to providesubject-related information of a general nature. There is nointention to render judgments or opinions about specificsituations, brokers and/or clients. If legal, accounting,and/or tax advice or other expert assistance is required,the services of a competent professional should be sought.

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Course OutlineGeneral OverviewComplexities of Global BusinessAdmitted vs. RestrictiveCompliance ChallengesInsurance StrategiesDesigning an Integrated Package of

CoveragesBasic Underwriting IssuesCriteria for Selecting a Global Marine

CarrierBenefits of Consolidating Coverages

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General OverviewComplexities of Global BusinessAdmitted vs. RestrictiveCompliance ChallengesInsurance StrategiesDesigning an Integrated Package of



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2005-Present2000-20051990-2000Prior to 1990

Need foradmittedpolicies virtuallynon existent.

Movement towardadmitted policiesprimarily driven byoverseas locationexposure.

Continued drive towardcompliance(ocean/inland/location)

Moreemphasis oncompliance.

Sarbanes-OxleyAct of 2002

2001 KvaernerDecision

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General Overview

Complexities of GlobalBusinesses

Admitted vs. RestrictiveCompliance ChallengesInsurance StrategiesDesigning an Integrated Package of



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Business promiseto the Customer

Reputation

International TaxAuthorities’

Framework and Assistance

E&O / LiabilityExposure

The Complexities of Global Business

TEM24(V1)Oct/28/09GC/ZCA

240+ countries andkingdoms

Sometimes multipleprovinces per country

Licensing requirements

Premium tax requirements

Conflicting regulations andpolicy requirements

Varying business practices

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General OverviewComplexities of Global Businesses

Admitted vs. RestrictiveCompliance ChallengesInsurance StrategiesDesigning an Integrated Package of



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Restrictive Insurance vs. LocallyAdmitted Insurance Required

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RESTRICTIVE INSURANCE

Put in place by local governmentsApply to all shipments being imported or exported from their countryImpacts all companies doing business with this country--not just

countries that have a local entity in countryPurpose, generally, to keep currency in country; support the local

insurance industryCan avoid potential difficulties by having imports arranged so buyer is

responsible for providing the insurance as determined by the Terms ofSale (INCOTERMS)

Example – Nigeria has restrictive insurance for imports

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LOCAL ADMITTED INSURANCE REQUIREDPut in place by local government agenciesApply to the insured’s entity domiciled in that countryRequirements apply only where the local entity has title to the covered propertyLike restrictive insurance, also designed to help support and promote local

insurance industryPremium taxes can also generate additional revenues for the local economyExposures could involve ocean transit, inland transit (shipments within one

country) or location exposures (warehouse/processing)Failure to comply with local regulations can result in problems with claims

payment and possible penalties imposes on the local entity

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General OverviewComplexities of Global BusinessesAdmitted vs. Restrictive

Compliance ChallengesInsurance StrategiesDesigning an Integrated Package of



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Regulatory and GovernanceDevelopments

Impact of Kvaerner court ruling

Impact of Sarbanes-Oxley

Impact of Spitzer Investigations

American-style litigationspreading globally

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Significance of Kvaerner Ruling

Defined insurance premium taxliability for the European Union

Premium tax must be paid in countrywhere risk is located

Implications across multiple lines ofinsurance

Jeopardizes legality of broad rangeof programs that were formerlydeemed properly structured

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1/31/2011 15Marine Insurance: Challenges and Opportunities 15

Countries Prohibiting Non-Admitted Insurance

(Examples of a total of approx. 140 jurisdictions)

Brazil:Art. 1 of Law Decree No. 73 of 1966Art. 113 Law Decree No. 73 of 1966Art. 19 of Complementary Law No. 126of 16 January 2007Art. 20 of Complementary Law No. 126of 16 January 2007

China:Circular 2002 No.112 of the China InsuranceRegulatory Commission

Japan:Article 186 Paragraph 1 of the InsuranceBusiness Law

France:Article L310 (various paragraphs) of theInsurance code

GermanySection 140 of the Insurance Supervisory Law(VAG) and Section 81 (1)

ItalyArticle 28 and 167 of the Insurance code

NetherlandsArticles 1:75, 1:66, 1:58, and others of the DutchFinancial Supervision Act and the DutchEconomic Offenses Act

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Example: Argentina

Imposed sanctions on theinsured and the broker due tothe placement of non-admittedpolicy in Argentina

Policy was admitted in US andIsle of Mann

Violation of Law no. 12,988T.O. 1953

Severe fines were imposed On the insured: 8 times

the premium amount On the intermediary: 15

times the amount ofpremium.

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Consequences of Non-Compliance?

Retrospective tax liabilities – includingpotential fines and penalties

Local authorities may declaresanctions against local operations

Loss of license for offending carriers

Non-compliant policies may bedeclared null and void

Very strict penalties in some overseasjurisdictions, including fines,suspensions and imprisonment ofoffending insurers

Depending upon jurisdiction andcircumstances, rules/penalties mightapply to the Insured, the AND/OR theBroker

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General OverviewComplexities of Global BusinessesAdmitted vs. RestrictiveCompliance Challenges

Insurance StrategiesDesigning an Integrated Package of



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Legal Challenge: Location of Risk Rule

Legal, regulatory, licensing and insurance premium tax (IPT) requirements inmany cases attach to:

The location of insured risk, orThe place of the insurer’s insurance activity

Risk

ProducingCountry

ReceivingCountry

Insurer Policyholder

Local Operation

Worldwide cover - naming of

local risk located in all foreign

jurisdictions as co-insured

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Certainty ofCoverage

Some countries DO NOT legally permit out-of-territoryinsurance

- Different licensing rules pertaining to admittedinsurance requirements

- Sanctions on non-admitted insurance policies includingthe power to declare a policy void if not compliant

Some countries DO permit out-of-territory insurance, but levyinsurance premium taxes (IPT) on non-life insurancepremiums that must be paid in order for out-of-territoryinsurance to be considered valid

IPT rules vary by territory and by LOB- Different parties responsible for payment of taxes- Necessity of a licensed tax paying entity

TaxCompliance

What is to be considered wheninsuring international risks?

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Common Objections to Placing a LocalAdmitted Policy

Never had it in the past, why now

It’s expensive

Master policy has a broad named assured wording which covers all myexposures

The risk manager can’t be bothered with all the additional work

Company XX is willing to issue one policy

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Why do you want a multinationalsolution?

The parent company’s ability to

- Assure consistent amounts and types of coverage and risk transferterms worldwide

- To centralize management of risk and not leave it to local entity to makeinsurance purchasing decisions

- Use it’s buying power to obtain favorable terms and pricing based on aglobal program

- Obtain consolidated loss information about each subsidiary- Have a consistent approach to risk engineering

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Basic Principles of an InternationalProgram

The Master Policy sets the framework and scope of the program

HOWEVER – LOCAL INSURANCE REGULATIONS MAY REQUIRE

1) Coverage for a particular LOB2) The company issuing the local policy must have a license in the

issuing country3) Adequate premium must be allocated for the local exposure4) Insurance tax must be paid where due: locally or under the Master

Policy

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Country Particularities – with Local PoliciesGeneral considerations (amongst others)

Mandatory local broker involvement

Cash before coverage (e.g. Japan)

Local Premium Payment deadlines

Issuance of policy close or after policyexpiration

Level of premium requirements by thecountries

Sub-limits

Wording restrictions

Premium collection and payment (limitationse.g. Mexico)

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Premium Allocation

Historically most local underwriters acceptedwhatever premium allocation was suggestedby the master underwriter

Local regulators are scrutinizing premium taxNo longer is the answer, “this is what we want

to allocate” acceptableWhere a small exposure exists many countries

now have minimum premium levels that theywill impose

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Policy Issuance Fees

Often referred to as overrideCan be based on premium size or

estimated claim activityShould be charged in addition to

risk transfer premium

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Taxes

Premium Taxes based on premium andoverride amounts added together

Usually calculated as a percent of thepremium plus override

Always paid in addition to premium andpolicy issuance fee

Each country has their own tax ratesDifferent rates can apply to Ocean Cargo/

Inland Transit/Warehouse exposuresNeed to be able to allocate premium by

exposure type.

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General OverviewComplexities of Global BusinessesAdmitted vs. RestrictiveCompliance ChallengesInsurance StrategiesDesigning an Integrated Package of

Coverages

Basic Underwriting IssuesCriteria for Selecting a Global Marine


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Ocean Cargo:Basic Underwriting Information

What countries does the insured haveentities that have responsibility to insure theocean cargo shipments?

The local name and street address of thecompany

The import/export insured values that thelocal entity is responsible to insure

Trading routes of the local entity

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Inland Transit (within one country)Basic Underwriting Information

What countries does the insured haveentities that have responsibility to insurethe inland transit shipments

The incoming/outgoing insured values thatthe local entity is responsible to insure

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Warehouse/ProcessingBasic Underwriting InformationWhat countries does the insured have entities that

have responsibility to insure covered propertystored/processed at their own location or a thirdparty location

The street address of each location where coverageis needed

The estimated average and maximum values at riskduring the coming year for each location and thepeak season, if relevant

COPE Information for named locations desirable

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CoveragesBasic Underwriting Issues

Criteria for Selecting a GlobalMarine Carrier

Benefits of Consolidating Coverages

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Criteria for Selecting a Global MarineCarrier

Global reachExpertiseFamiliarity with local

marketsCompliance expertiseDepth and breadth of

insurance coverageLocal claims expertiseLocal Risk Engineering

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Carrier

Benefits of ConsolidatingCoverages

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Property and Casualty Insurance Policy

The Benefits of an International Program:the 5 C’s

How can I optimize my total Costs ofinsurance?

How do I ensure a consistent insuranceCover for all my local operations?

How can I make my life Convenient byhaving one contact person only?

How do I get an overview and Control of mylocal policies and claims?

How do I deal with all local regulatory, legaland tax requirements – ensuringCompliance?

InsurancePolicyMarine Insurance–

International Insurance ProgramInsurance Policy

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Questions?

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