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