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Peeling Back the Layers of Risk for U.S. Companies on the Global Stage

Multinational companies need programs tailored to their unique exposures.
By: | April 9, 2018 • 6 min read

U.S.-based companies of every size have compelling reasons to take their business abroad. This especially holds true as global expansion is no longer exclusive to Fortune 500 corporations.

“The primary driver of international expansion is economic opportunity,” said Jonathon Fanti, Senior Vice President and Underwriting Leader, Public Company Management Liability, QBE North America.

“Though the U.S. economy continues to recover, tapping into the resources, workforces and consumer bases of other nations represents big growth potential for American organizations.”

Technology has been a key driver to increasing international commerce. Companies are able to easily communicate and conduct transactions from thousands of miles away.

“The internet has made it easier for U.S. companies of all sizes to sell their products and services overseas than it was 20 years ago. It allows for 24/7 communication,” said Harpreet Mann, Vice President, QBE North America.

But going international doesn’t always mean building factories or brick-and-mortar offices abroad. It could also mean selling a product overseas without having any physical location there, sourcing supplies from foreign firms, or it could mean international executive travel.

Different layers of global involvement bring increased multinational risks, requiring global expertise and protection.

Travel Risk

With increasing frequency, regardless of company size, employees often travel outside the U.S. to seek business in a new market; research potential suppliers; or scout possible locations for a new facility, shop or office. For these companies, the primary level of overseas exposure involves international travel.

Standard travel insurance typically covers cancellations and delays, lost baggage, medical expenses, evacuations and a 24/7 assistance hotline. Such coverage may not be enough to mitigate an employer’s risk.

“Employers have a duty to care for the health and well-being of employees, especially when they are halfway around the globe,” said Richard Friesenhahn, Head of Multinational, QBE North America.

However, “a domestic workers’ compensation policy may not cover incidents that happen abroad,” Friesenhahn said. “Consequently, it is imperative companies have a global policy that will take care of employees no matter where they are.”

The most diligent employers will partner with insurers to provide pretravel risk assessments in various regions worldwide and develop plans to reduce potential risks. They also offer real-time security updates for specific regions, and trustworthy local medical providers to help workers who become ill or injured.

Working with a company that provides expertise is key, as the extension of coverage outside the U.S. for domestic workers’ compensation varies by state and may not cover accidents that happen abroad. In addition, employers may need multiple coverages to cover all the risks a traveler could be exposed to.

Risks to Companies’ Receivables

As companies increasingly sell their goods overseas, they are often required to extend credit to their buyers to remain competitive and make the sale. By extending credit, the company selling its products overseas is assuming risks that could result in nonpayment by the buyer. It is crucial such companies protect one of their most valuable assets — their receivables — which involves understanding the risks that may trigger non-payment.

By allowing a buyer to pay in the future for goods delivered, the company selling the goods is assuming credit risk. Specifically, such a company is exposing itself to the possibility that the buyer’s financial condition may deteriorate and impact its ability to pay. If a buyer does not make payment, the company supplying the goods will certainly incur a financial loss.

Another risk arises from the increasing trend toward companies selling to fewer and fewer entities. As a result, companies’ sales are concentrated in a few large buyers. The failure, therefore, of one buyer to pay can significantly impair the financial condition of the company supplying goods.

Companies may be exposed to political risks, as well as concentration risks, when selling goods outside the United States. A recent report by the Department of Commerce noted that Mexico, Canada, China, Japan and the UK were the top five markets for SME’s exporting overseas.

It is important for companies to understand how geopolitical risks may impact a buyer’s ability to make payment.

With the recent political discourse around exiting or renegotiating, international trade agreements may further increase political risks for companies selling overseas. The increased political risk could be in the form of sanctions, embargoes, license cancellations or other retaliatory measures taken if international relations sour. Such changes could block a company’s access to profitable markets and disrupt supply chains.

Brick-and-Mortar Risk

One of the most critical risks faced by a company is the threat to their physical locations outside the United States, whether it is a production facility, warehouse, office or retail distributor.

A traditional global master policy encompassing property/casualty, workers’ comp and auto liabilities may not provide enough coverage or even be considered legal in some countries. Some jurisdictions require that foreign companies purchase local policies from a locally-licensed admitted carrier.

“When you get down to it, the countries want the tax,” Fanti said. “Requiring local policies by law is about supporting their local economy.”

Such requirements vary by coverage and country. Local property, casualty, auto and workers’ comp policies are usually compulsory, but others like management and professional liability coverage may not be required by local regulators. Failure to get local coverage can result in steep fines and prevent claims from getting paid.

“Non-licensed, non-admitted carriers are not legally allowed to send funds into some regions where local policies are required by law,” Fanti said. “If your master policy isn’t recognized, you need to find an insurance carrier who will legally be able to pay your claim.”

Global Expertise

QBE North America, an integrated specialist insurer, recently expanded its multinational offering with QBE Global Connect, a foreign casualty package comprised of General Liability, Excess Auto and Foreign Voluntary Compensation coverages, joining its existing multinational Directors’ and Officers’ liability insurance offering. The company’s Global Credit & Surety business also offers solutions for multinational companies worldwide.

“QBE is offering an integrated multinational solution in the marketplace by connecting a strong management liability solution with our property and casualty expertise and multinational coverage. As a multinational insurer with offices and expertise around the globe, we are uniquely positioned in the market to satisfy the growing need for multinational expertise and coverage,” Friesenhahn said.

QBE’s Multinational Client Centers help domestic clients identify global risks and implement a comprehensive program tailored to their specific needs.

“The centers address regulatory, compliance and tax needs while coordinating communications throughout our global network,” Fanti said. That network consists of 36 offices worldwide and a service team dedicated to ensuring product of local policies around the globe.

“QBE is truly global with on-the-ground teams who understand the local risks and local coverages. They can provide the network with up-to-date insights on regulatory changes, and the network is in constant communication with our brokers and underwriters,” Fanti said.

The QBE P&C and D&O multinational coverage solutions, QBE’s Multinational Client Centers and the integration of 36 QBE offices and partners around the world make QBE a leading insurer in the multinational space.

To learn more, visit QBE’s newly launched website at www.qbena.com.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with QBE North America. The editorial staff of Risk & Insurance had no role in its preparation.




QBE North America is a division of QBE Insurance Group Limited, one of the world's 20 largest insurance and reinsurance companies. We offer the unique integration of financial strength, a broad product set and sophisticated capabilities to deliver value for our partners and policyholders.

Cyber Resilience

No, Seriously. You Need a Comprehensive Cyber Incident Response Plan Before It’s Too Late.

Awareness of cyber risk is increasing, but some companies may be neglecting to prepare adequate response plans that could save them millions. 
By: | June 1, 2018 • 7 min read

To minimize the financial and reputational damage from a cyber attack, it is absolutely critical that businesses have a cyber incident response plan.

“Sadly, not all yet do,” said David Legassick, head of life sciences, tech and cyber, CNA Hardy.

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In the event of a breach, a company must be able to quickly identify and contain the problem, assess the level of impact, communicate internally and externally, recover where possible any lost data or functionality needed to resume business operations and act quickly to manage potential reputational risk.

This can only be achieved with help from the right external experts and the design and practice of a well-honed internal response.

The first step a company must take, said Legassick, is to understand its cyber exposures through asset identification, classification, risk assessment and protection measures, both technological and human.

According to Raf Sanchez, international breach response manager, Beazley, cyber-response plans should be flexible and applicable to a wide range of incidents, “not just a list of consecutive steps.”

They also should bring together key stakeholders and specify end goals.

Jason J. Hogg, CEO, Aon Cyber Solutions

With bad actors becoming increasingly sophisticated and often acting in groups, attack vectors can hit companies from multiple angles simultaneously, meaning a holistic approach is essential, agreed Jason J. Hogg, CEO, Aon Cyber Solutions.

“Collaboration is key — you have to take silos down and work in a cross-functional manner.”

This means assembling a response team including individuals from IT, legal, operations, risk management, HR, finance and the board — each of whom must be well drilled in their responsibilities in the event of a breach.

“You can’t pick your players on the day of the game,” said Hogg. “Response times are critical, so speed and timing are of the essence. You should also have a very clear communication plan to keep the CEO and board of directors informed of recommended courses of action and timing expectations.”

People on the incident response team must have sufficient technical skills and access to critical third parties to be able to make decisions and move to contain incidents fast. Knowledge of the company’s data and network topology is also key, said Legassick.

“Perhaps most important of all,” he added, “is to capture in detail how, when, where and why an incident occurred so there is a feedback loop that ensures each threat makes the cyber defense stronger.”

Cyber insurance can play a key role by providing a range of experts such as forensic analysts to help manage a cyber breach quickly and effectively (as well as PR and legal help). However, the learning process should begin before a breach occurs.

Practice Makes Perfect

“Any incident response plan is only as strong as the practice that goes into it,” explained Mike Peters, vice president, IT, RIMS — who also conducts stress testing through his firm Sentinel Cyber Defense Advisors.

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Unless companies have an ethical hacker or certified information security officer on board who can conduct sophisticated simulated attacks, Peters recommended they hire third-party experts to test their networks for weaknesses, remediate these issues and retest again for vulnerabilities that haven’t been patched or have newly appeared.

“You need to plan for every type of threat that’s out there,” he added.

Hogg agreed that bringing third parties in to conduct tests brings “fresh thinking, best practice and cross-pollination of learnings from testing plans across a multitude of industries and enterprises.”

“Collaboration is key — you have to take silos down and work in a cross-functional manner.” — Jason J. Hogg, CEO, Aon Cyber Solutions

Legassick added that companies should test their plans at least annually, updating procedures whenever there is a significant change in business activity, technology or location.

“As companies expand, cyber security is not always front of mind, but new operations and territories all expose a company to new risks.”

For smaller companies that might not have the resources or the expertise to develop an internal cyber response plan from whole cloth, some carriers offer their own cyber risk resources online.

Evan Fenaroli, an underwriting product manager with the Philadelphia Insurance Companies (PHLY), said his company hosts an eRiskHub, which gives PHLY clients a place to start looking for cyber event response answers.

That includes access to a pool of attorneys who can guide company executives in creating a plan.

“It’s something at the highest level that needs to be a priority,” Fenaroli said. For those just getting started, Fenaroli provided a checklist for consideration:

  • Purchase cyber insurance, read the policy and understand its notice requirements.
  • Work with an attorney to develop a cyber event response plan that you can customize to your business.
  • Identify stakeholders within the company who will own the plan and its execution.
  • Find outside forensics experts that the company can call in an emergency.
  • Identify a public relations expert who can be called in the case of an event that could be leaked to the press or otherwise become newsworthy.

“When all of these things fall into place, the outcome is far better in that there isn’t a panic,” said Fenaroli, who, like others, recommends the plan be tested at least annually.

Cyber’s Physical Threat

With the digital and physical worlds converging due to the rise of the Internet of Things, Hogg reminded companies: “You can’t just test in the virtual world — testing physical end-point security is critical too.”

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How that testing is communicated to underwriters should also be a key focus, said Rich DePiero, head of cyber, North America, Swiss Re Corporate Solutions.

Don’t just report on what went well; it’s far more believable for an underwriter to hear what didn’t go well, he said.

“If I hear a client say it is perfect and then I look at some of the results of the responses to breaches last year, there is a disconnect. Help us understand what you learned and what you worked out. You want things to fail during these incident response tests, because that is how we learn,” he explained.

“Bringing in these outside firms, detailing what they learned and defining roles and responsibilities in the event of an incident is really the best practice, and we are seeing more and more companies do that.”

Support from the Board

Good cyber protection is built around a combination of process, technology, learning and people. While not every cyber incident needs to be reported to the boardroom, senior management has a key role in creating a culture of planning and risk awareness.

David Legassick, head of life sciences, tech and cyber, CNA Hardy

“Cyber is a boardroom risk. If it is not taken seriously at boardroom level, you are more than likely to suffer a network breach,” Legassick said.

However, getting board buy-in or buy-in from the C-suite is not always easy.

“C-suite executives often put off testing crisis plans as they get in the way of the day job. The irony here is obvious given how disruptive an incident can be,” said Sanchez.

“The C-suite must demonstrate its support for incident response planning and that it expects staff at all levels of the organization to play their part in recovering from serious incidents.”

“What these people need from the board is support,” said Jill Salmon, New York-based vice president, head of cyber/tech/MPL, Berkshire Hathaway Specialty Insurance.

“I don’t know that the information security folks are looking for direction from the board as much as they are looking for support from a resources standpoint and a visibility standpoint.

“They’ve got to be aware of what they need and they need to have the money to be able to build it up to that level,” she said.

Without that support, according to Legassick, failure to empower and encourage the IT team to manage cyber threats holistically through integration with the rest of the organization, particularly risk managers, becomes a common mistake.

He also warned that “blame culture” can prevent staff from escalating problems to management in a timely manner.

Collaboration and Communication

Given that cyber incident response truly is a team effort, it is therefore essential that a culture of collaboration, preparation and practice is embedded from the top down.

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One of the biggest tripping points for companies — and an area that has done the most damage from a reputational perspective — is in how quickly and effectively the company communicates to the public in the aftermath of a cyber event.

Salmon said of all the cyber incident response plans she has seen, the companies that have impressed her most are those that have written mock press releases and rehearsed how they are going to respond to the media in the aftermath of an event.

“We have seen so many companies trip up in that regard,” she said. “There have been examples of companies taking too long and then not explaining why it took them so long. It’s like any other crisis — the way that you are communicating it to the public is really important.” &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected] Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]