Going International Can Raise Business Risk by 10x and Your Current Insurance Program Can’t Handle It

For small to mid-sized businesses operating abroad, risks multiply fast and could become an existential threat.
By: | November 2, 2018 • 5 min read

More businesses are expanding their operations abroad to take advantage of growth opportunities, but every new market adds a new layer of risk. Failing to account for the connectivity of these risks in a global insurance program could leave companies hung out to dry when a big loss happens.


Alfred Bergbauer, VP and Head of Multinational for The Hartford, explained why international risk is so complicated, and what multinational companies need to do better if they want their insurance program to properly protect them.

R&I: What are the primary risk exposures for companies operating internationally?

Alfred Bergbauer: When U.S. companies start to engage in international business, they don’t necessarily take on new or additional risks; the complexity comes from the interconnectivity of exposures located in different countries that all have their own unique geographical, legal and regulatory environments.

There are four categories of risk that any business contends with: physical hazard, operational, fiduciary and strategic.

While the core risks may be common across companies, when you expand your operations internationally, you multiply your exposures and risk complexity by the number of countries you operate in. It is imperative that you consider how risks in one country interact with risks in another, and how that impacts your overall insurance program.

Alfred Bergbauer, VP and Head of Multinational, The Hartford

Managing risks for modern multinational companies is like playing chess on a multilayered board. Move one piece on board #1, it impacts your position on board #5.

R&I: Can you provide examples of this interconnectivity?

AB: You can look at this from both a property and liability perspective. Let’s use a manufacturer as an example.

One facility in Country A has a fire and has to shut down for two weeks. That creates downstream losses for their facility in Country B, which is dependent on the supplies coming out of Country A. Each of those locations has a different insurer because the local laws mandate using a locally admitted carrier.

The insurer in Country B won’t cover the business interruption losses because the facility there sustained no physical damage. It maintains the loss is in Country A. The insurer in Country A likewise says it will cover BI losses for the fire-damaged facility, but it’s not responsible for subsequent losses in Country B.

Companies may understand their property exposure in any given location and buy insurance for that, but when you layer the risks on top of each other and account for the relationship between those risks, it gets more complicated.

Product liability is another example.

Manufacturers export products to multiple countries and therefore have multiple local product liability policies, underwritten by different insurers with different policy language, different triggers, and different interpretations of location of risk.

Failing to account for that connectivity of risk in your insurance program ultimately means that exposures go uninsured. That can be especially devastating for smaller or mid-sized multinational companies because their margins of error are much slimmer.

Say you have a product that was manufactured and sold in Germany and you have a claim that arises from use in the United States. Your insurer in Germany says the product liability risk is located in the jurisdiction of loss, and insists that their policy does not apply. Your insurer in the United States could argue that the product liability risk is not covered by their policy, as most U.S. policies respond based on where products are manufactured and sold versus the location of loss.


In this instance the insured could end up with no coverage for that loss. Working with a broker and insurer who understands client needs and focuses on policy language that addresses those needs is critical.

Failing to account for that connectivity of risk in your insurance program ultimately means that exposures go uninsured. That can be especially devastating for smaller or mid-sized multinational companies because their margins of error are much slimmer.

R&I: What are some factors for business leaders to keep in mind as they try to identify the interaction between all of their risks?

AB: It is imperative to understand and trace all supply chain vulnerabilities across all locations. If a physical hazard imperils one of your locations, how will you get products to market with a disrupted supply chain? What is your physical proximity to backup suppliers and distributors? Are you near the critical infrastructure you need to recover quickly, such as energy, water and transportation networks?

And you have to know the regulatory environment. Strategically, entering emerging markets can help gain long-term market share, but the legal and regulatory environment has to be supportive of good business practice. Is the rule of law predictable? Are their licenses solid?

R&I: How well do mid-sized companies handle the complexity of international risk management?

AB: For the most part, they don’t. They typically trust their broker to understand how their risks are connected and to procure the right insurance for them.

Entrepreneurs are experts in their own field. They know their business. Unfortunately, many companies don’t fully appreciate the risks associated with global business activity. Few corporations outside of Fortune 500s take the time, or boast the resources, to perform a thoughtful risk assessment regarding their international operations and their impact on their insurance portfolio.

When policies are compared solely on price, insurance becomes a commodity and not the true balance sheet protection tool it was meant to be.

And too often, they buy insurance based on premium. When policies are compared solely on price, insurance becomes a commodity and not the true balance sheet protection tool it was meant to be.

R&I: What are some steps mid-sized companies doing business abroad can take to build an insurance program that really addresses all their risks?

AB: Take the time to run different loss scenarios and really dig down into how each one impacts your business as a whole. What are the operational, financial and insurance impacts of any given event? Do you really understand what could happen, and how your insurance will respond?

More importantly, is that how you would like your insurance to respond?


Bring your broker and underwriter together to create a controlled master program customized to meet your specific needs, and then stress test it. Clients have the power to demand that, and they should exercise it. We have to move away from a single minded approach in insurance buying where decisions are based solely on the best price.

Controlled master programs are not generic or homogenous; they are customized to reflect an insured’s risk finance strategy and they require input from strategic and financial leaders, not just insurance procurement.

The way a program is structured could make the difference whether your company is able to prevail when facing a large or complex loss. &

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at kdwyer@lrp.com.

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.


Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”


Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.


“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at riskletters@lrp.com.