Risk Focus: Regulatory

Peril and Opportunity

Shifting strategies are influencing the way multinationals design their global programs.
By: | December 14, 2017 • 6 min read

In this increasingly globalized world, more and more companies are expanding their boundaries, trading across different time zones and borders and moving into new territories.

Many have already built up an extensive network of offices, operations, assets and personnel across the globe.

But they also face a multitude of challenges in establishing and maintaining international trade.

Nick Batten, vice president of global services, FM Global

These can include differing business customs and cultures, political and legal environments, tax and insurance regulations, languages, geography and climate, not to mention cyber attacks and terrorism.

“There’s never been a time of greater peril or opportunity,” said Nick Batten, vice president of global services, FM Global. “The pace of regulatory change that we are seeing in the financial markets across the world is faster and more capricious than ever before. Companies need to adapt accordingly to meet those changes.”

And with 94 percent of companies saying they plan to grow their operations outside the U.S. within two years, according to a recent survey by The Hartford, that risk is only going to increase.

There are three main insurance options available for a multinational: local policies, a single global policy or a controlled master program (CMP).


The local policies are issued by a licensed-admitted local broker or carrier to insure against risks in that particular country, whereas a single global policy or master policy is generally issued in the insured’s home country and is intended to cover all of its worldwide risks on a non-admitted basis.

A CMP combines both local policies and the single global policy to provide comprehensive coverage and to ensure there are no gaps.

Which option a company chooses depends on the size of its global footprint, exposure, risk appetite, approach to local retention and deductibles, and level of central decision making.

“Not one size fits all,” said Praveen Sharma, global leader, Marsh’s Insurance Regulatory & Tax Consulting Practice. “It all depends on the particular client, their business model, exposure and risk appetite.”

Key Considerations

Before entering into a global insurance program, Sharma said companies should first work with a knowledgeable broker and insurer to determine their risk, the regulatory and tax requirements in that country and why they need to buy an insurance policy.

Then they need to find a program that provides comprehensive coverage at a reasonable cost and complies with the necessary laws and regulations, he said.

“It is paramount that the insurable risks of the U.S.-based group are insured in an appropriate manner and that the global insurance program responds in the expected manner in the event of a loss suffered by the U.S.-based insured group,” said Sharma. “The insurance program therefore must be structured in a manner that is ‘fit for purpose’ and meets the insurance needs and expectations of the multinational group and is as compliant as possible from both a regulatory and a tax perspective.”

Another key consideration is the growth of third party risks within the supply chain, said Kathrin Howard, practice leader, Allianz Multinational, USA.

“Companies need to understand all the components of their supply chain and find a program that can help them to mitigate that risk,” she said. “It’s also important to have a back-up plan should the worst happen.”

Central to developing a successful program is also being consistent and ensuring retentions and terms and conditions are similar across all borders, said Lou Capparelli, executive vice president at Chubb’s Global Casualty Business in the North America Major Accounts Division.

“Those U.S.-based multinational companies that are successful in addressing these challenges typically have programs in place that provide uniformity in the limits and types of coverage they purchase to address worldwide exposures,” he said.

“For example, a deductible recovery program structure can help simplify the process and position companies to better retain desired portions of risk globally, while ensuring they are compliant with local regulations and tax requirements.”

Local vs. Global Policy

Some countries may require local operations to be covered by a local policy issued by a licensed local carrier, certain terms and conditions may only be available in the local marketplace, or the local subsidiary may also be required to calculate and settle local premium taxes itself.

Carol Barton, president, AIG Multinational

The main advantage of buying local policies is that they meet local industry practices and regulatory requirements, provide access to local reinsurance pools as well as fulfilling local contractual obligations, and enable local claim servicing and payment of claims, premiums and premium taxes.

“Certainly in the past a more centralized approach would have made sense, but now, given the current wave of nationalism and the development of local markets, a more local or regional approach may be more appropriate,” said Aon’s Global Client Network U.S. leader Kathleen Lynch.

“Also, there are certain countries and local markets that require local insurance, so those nuances have to be factored in with developing a program.”

With a single global policy, the company can assess its risks and insurance needs centrally and provide consistent terms and conditions, limits and umbrella attachment points for its worldwide operations, particularly for cyber and environmental.

However, AIG Multinational’s president Carol Barton warned against choosing a global policy at the expense of local policies.


“Clients should be well-versed on the potential limitations they may encounter should they choose to forgo local policies,” she said. “In particular, multinationals should be aware of the potential pitfalls a lack of local coverage could create in the areas of compliance, claims, income tax, proof of insurance and coverage.”

With a CMP, however, you get the best of both worlds, with the global policy providing difference in conditions or difference in limits to bridge any gaps in the local policies, particularly in property, international casualty and D&O.

It also provides coverage if a claim is either not covered under a local policy or the local policy limit is exhausted, and covers risks in countries where there are no local policies.

“That’s the way a large percentage of multinationals are operating now under a CMP,” said Claude Gallelo, managing director and leader, Willis Towers Watson’s Global Network Practice. “It gives them the advantage of having a local policy as well as that added element of protection by being better able to control their overseas operations with a master program.”

Tim Bunt, chief risk officer, CBRE, a commercial real estate firm present in 120 countries, said his company uses all three approaches.

“In some cases we use a global policy, in some it’s a CMP and in others we’ll have local policies in those countries,” he said. “The approach you choose depends on what you are trying to achieve as a company with your overseas operations.”

Risk Transfer and Mitigation

One way to further mitigate or transfer risk is to insert a financial interest clause, said Joanna Roberto, a partner at Goldberg Segalla’s New York office.

This allows the parent to shift certain risks to or away from its subsidiaries by only covering its own financial interest in that particular subsidiary, she said.

“A financial interest clause is an interesting concept because it completely avoids the risk of losses that are suffered by a subsidiary by expressly not insuring them under the master policy,” she said.


“Indeed, there are other variations of the clause which require evaluating the parent company’s ownership interest against the loss sustained by the subsidiary.”

Another loss prevention technique, said Smita Bhugava, senior vice president, Clements Worldwide, is to have an action plan to deal with any potential events, to reinforce best practices and to share knowledge with peers and experts in that country.

“The world and the exposures we face are becoming more complex and varied,” she said. “So you need to have a well-thought-out strategy that will address all of these issues and ensure that you don’t have any nasty surprises.” &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Absence Management

Establishing Balance With Volunteers

It’s good business to allow job-leave for volunteer emergency responders, whether or not state laws apply.
By: | January 10, 2018 • 7 min read

If 2017 had a moniker, it might be “the year of the natural disasters,” thanks to a phenomenal array of catastrophic or severe events— hurricanes, tornadoes, wildfires, ice storms and floods.


Combined with smaller-scale fires and other emergencies, these incidents tax the resources of local and state emergency services, often prompting the need to call volunteer emergency responders into action.

But as lean as most organizations are already running, volunteer activities can sometimes cause friction between employees and employers. Handling conflicts the wrong way can potentially lead to legal headaches, harm employee morale and batter a company’s reputation.

State by State Variations

Most employers are aware of the various federal and state leave laws protecting their employees, including family and medical leave, pregnancy leave and military leave. But leave laws that protect the livelihoods of volunteer emergency responders are more likely to fly under the radar of some HR managers and risk managers.

Such laws don’t exist in every state, but more than 20 states do have some type of law in place to protect volunteers including emergency responders, firefighters, disaster workers, medical responders, ambulance drivers or peace officers.

Marti Cardi, vice president of Product Compliance for Matrix Absence Management

The laws vary broadly. Nearly all specify that such leave be unpaid, and that employees disclose their volunteer status to employers and provide documentation for each leave. But there is a spectrum of variations in terms of what may trigger an eligible leave. Some, for instance, apply for any emergency that prompts a call from the volunteer’s affiliated responder group. Others may require a government declaration of emergency for the law to be triggered.

While many of the laws do not explicitly require employers to let employees leave work when called to an emergency during a shift, most specify that an employee may be late or even miss work entirely without facing termination or any other adverse employment action.

Some states mandate a maximum number of unpaid leave days that a volunteer can claim. But others may place more significant burdens on employers. In California, for instance, employers with 50 or more employees are required to grant up to 14 days of unpaid leave for training activities in addition to any leave taken to respond to emergency events. For multistate employers, keeping on top of what obligations may apply in each circumstance can be a challenge.

Significant Risks

Large or mid-sized employers may rely on absence management providers to keep them in compliance. For smaller employers though, it may be as simple as looking up a state’s law via Google to find out what’s required. However, checking in with the state department of labor or the company’s attorney may be the best way to get the correct facts.

“I would caution that just because you don’t find something [on the internet], it doesn’t mean it’s not there,” said absence management and employment law attorney Marti Cardi, vice president of Product Compliance for Matrix Absence Management.

For example, Cardi said, an obscure Texas law provides job-protected leave for volunteer ham radio operators called into service during an emergency.

Cardi said employers should task HR to investigate the laws in each state the company operates in, and to ensure that supervisors are educated about the existence of these laws.

“If a supervisor is told by one of his or her employees, ‘Sorry I’m not coming in today … I’ve been called to volunteer firefighter duty for the [nearby region] fire,’” she said, you want to be sure that the supervisor knows not to take action against the employee, and to contact HR for guidance.

“Training supervisors to be aware of this kind of absence is really important.”


An employer that does terminate a protected volunteer for responding to an emergency may be ordered to pay back wages and reinstate the employee. In some cases, the employee may also be able to sue for wrongful termination.

And of course, “you don’t want to be the company in the headlines that is getting sued because you fired the volunteer firefighter,” she added.

If an employer bars a volunteer from responding, the worst-case scenario may be a third-party claim. Failure to comply with the law could give rise to a claim along the lines of “‘If you had complied with your statutory obligation to give Jane Doe time to respond, my loved one would not have died,’” explained Philadelphia-based Jonathan Segal, partner at law firm Duane Morris and managing principal of the Duane Morris Institute.

“That’s the claim I think is the largest in terms of legal risk.”

Even if no one dies or is seriously injured, he added, “there could still be significant reputational risk if an individual were to go to the media and say, ‘Look, I got called by the fire department and I wasn’t allowed to go.’”

The Right Thing to Do

What employers should be thinking about, Segal said, is that whether or not you have a legal obligation to provide job-protected leave for volunteer responders, “there’s still the question of what are the consequences if you don’t?”

Employee morale should be factored in, he said. The last thing any company wants is for employees to perceive it as insensitive to their interests or the interests of the community at large.

“Sometimes employers need to go beyond the law, and this is one of those times,” — Jonathan Segal, partner, Duane Morris; managing principal, Duane Morris Institute

“How is this going to resonate with my employees, with my workforce, how are people going to see this? These are all relevant factors to consider,” he said.

There’s an argument to be made for employers to look at the bigger picture when it comes to any volunteer responders on their payroll, said Segal.

“Sometimes employers need to go beyond the law, and this is one of those times,” he said. “Think about the case where’s there’s not a specific state law [for emergency responders] and you say to a volunteer, ‘No, you can’t leave to deal with this fire’ and then people die. You as an employer have potentially played a role, indirectly, because you didn’t allow the first responder or responders to go,” he said.

The bottom line is that “it’s the right thing to do, even if it’s not required by law,” agreed Cardi.

“I feel that companies should have a policy that they’re not going to discipline or discharge someone for absences due to this kind of civic service, subject to verification of course.”

Clear Policy

While most employers do strive to be good corporate citizens, it goes without question that employers need to guard their own interests. It’s not especially likely that volunteer responders will try to take advantage of the unpaid leave allowed them, but of course, it could happen.

That’s why it’s important to have policies that are aligned with state laws. Those policies could include:

  • Notifying the company of any volunteer affiliations either upon hire or as soon they are activated as volunteers.
  • Requiring that employees notify a supervisor as soon as possible if called to an emergency (state requirements vary).
  • Requiring documentation after the event from the head of the entity supervising the volunteer’s activities.

If at some point it becomes excessive – someone has responded to emergencies five times in nine weeks, then it’s time to examine the specifics of the law and have a discussion with the employee about what’s reasonable, said Segal. It may also be time to ask specifics about whether the person is volunteering each time, or are they being called.


In some cases, the discussion may need to be about finding a middle ground, especially if an employee has taken on an excessively demanding volunteer role.

“We encourage volunteers to pick the style that best fits their schedule,” said Greta Gustafson, a representative of the American Red Cross. “Disaster volunteers can elect to respond to disasters locally, nationally, or even virtually, and each assignment varies in length — from responding overnight to a home fire in your community to deploying across the country for several weeks following a hurricane.

“The Red Cross encourages all volunteers to talk with their employers to determine their availability and to communicate this with their local Red Cross chapter.”

Segal suggests approaching it as an interactive dialogue — borrowing from the ADA. “Employers may need to open a discussion along the lines of ‘I need you here this week because this week we have a deliverable on Friday and you’re critical to that client deliverable,’” he said, but also identify when the employee’s absence would be less critical.

No doubt there will be tough calls. An employer may have its hands full just trying to meet basic customer needs and need all hands on deck.

“That may be a situation where you say, ‘First let me check the law,’” said Segal. If there’s a leave law that applies, “then I’m going to need to comply with it. If there’s not, then you may need to balance competing interests and say, ‘We need you here.’” &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]