Risk Considerations
When Working Globally
Frank Wampol, Corporate Safety Director, B. L. Harbert International
David Warman, Willis Construction Practice
Tanja Maffei, Willis International
September, 2012
Today’s Agenda

Globalization

Considerations When Expanding Overseas

Some Examples

When to Purchase International Insurance

Typical International Program Structures

Top International Insurers

Emerging Topics and Hot Countries

Best Practices

Willis International Construction Capabilities
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Appendix
2
Globalization—New World Order
 Economic activity and wealth patterns are shifting dramatically. The World’s Ten
Largest Economies (Gross Domestic Product, GDP) recent past and looking forward:
Rank 2010
Rank 2020 (Forecast)
1.
United States
1.
China
2.
China
2.
United States
3.
Japan
3.
India
4.
India
4.
Japan
5.
Germany
5.
Russia
6.
Russia
6.
Germany
7.
United Kingdom
7.
Brazil
8.
France
8.
United Kingdom
9.
Brazil
9.
France
10.
Italy
10.
Mexico
Source: © 2010 Euromonitor International
3
Globalization—Corporate Risk
in the Real World
Publication Date 08/27/2012
Source: UPI International Top News
28 punished for building collapse
Chinese authorities said 28 people have been punished for a
building collapse in November, 2011 that killed six people and
injured seven others.
Among those held responsible for the incident were Zheng
Xinqin, the deputy governor of Chengqu District of Shanwei
city, Guangdong province, and Zhuo Hongzuan, director of
the district's Urban and Rural Construction Bureau, Xinhua
reported Sunday.
Punishments ranging from disciplinary warning to serious
demerits were handed out to the 28 for the Nov. 22 building
collapse in Shanwei.
The building that collapsed was being built as a training
facility for a bank. Design defects and substandard
construction were to blame for the collapse that killed six
and injured seven and caused a $1.59 million loss.
4
Considerations When Expanding
Overseas
Assets and Possible Solutions
 Protecting People – D&O, WC, EL, AD&D, DBA, K&R, Benefits,
Faute Inexcusable, UK Manslaughter Act, Strict liability, auto, war,
evacuation, political disasters
 Insuring Assets – CAR, property, auto, mobile equipment,
shipments, surety, trade credit, terrorism, CEN/Political risk,
patent/trademark,
 Revenue Streams – BI, CBI, Supply chain, Reputation
 Environment – Strict liability, fines and penalties
 Country risk
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Considerations When Expanding
Overseas
 Regulatory Compliance/Protectionism
 Global Taxes – income, people, premiums and claims
 Litigiousness/Legal environment/Claims Handling
 Service availability and standards- suppliers, vendors, brokers,
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adjusters, loss control
Liability – contractual risk transfer vs. law, who is responsible, what
is standard limit/deductible in each country, good local standard
extensions, fines and penalties
Professional/E&O, Reps and warranties, Decennial, Reputational
risk, Patent/Trademark, Cyber
Legal Entity Structure – Partnerships vs. JV vs. Wholly Owned
Entities
Global Data – exposures, certificates, contracts, audits, claimsstorage, updates, online 24/7 access
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People Issues- Protecting Your
Employees Worldwide
 SCR, a wholly-owned subsidiary of Willis Limited with over 70 international staff
 with over 30 years experience, SCR are the world’s leading specialist insurance broker for
Kidnap and Ransom and Extortion; High-Risk Personal Accident and Emergency Medical
Expenses, Political and Natural Disaster Evacuation and Repatriation and Crisis
Management
 SCR’s Risk Prevention/Security Consultancy services can include:
 Audit of client’s security, crisis management and evacuation plans
 Terrorism surveys of construction facilities – often in conjunction with Willis’ in-house
team of Engineers to add value to EML calculations
 Hostile environment and security awareness training for expatriate staff and travelers
 International Travel Advice
 SCR’s in-house Risk Prevention and Security Consultants have ex-FBI and former UK
Special Forces background and long-standing experience in working with Construction
clients globally
 when you purchase an insurance product through SCR, Insurers will often make a
contribution to the cost of the Prevention Service via Risk Prevention Allowance – available
as a percentage of the policy premium

Contact: Philipp A. Seel - seelp@willis.com
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People Issues
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People Issues
 Know and respect the culture
 Work force motivation
 Obtaining safety and quality buy-in
 Back to the basics!
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Asset Issues
 Availability of Materials
 Availability of Equipment and Spare Parts
 Local Transportation Challenges
 Local Logistical Challenges
 Lack of Municipal Infrastructure
 Adapting to Local Laws and Customs
 Safety and Health Concerns
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When to Purchase International
Insurance
Is there an owned
overseas company?
(legal entity, assets, people, sales)
No
Can cover
from home
country
Yes
What is at stake?
What do you have to lose?
How much control to exercise? At
what cost?
1.
2.
3.
4.
Compulsory covers
Contract requirements
Non-admitted illegal
Exemptions to non-admitted
(aviation, marine, no local market)
5.
Yes
Local admitted
policy
Reasons to want local cover
(claims service, language, currency, tax, JVs)
11
Typical International Program Structures—
Controlled Master Program (CMP)
A single insurer issues a Master Policy in the home country (e.g., U.S.) which
acts as Excess/Difference In Conditions over the policies issued locally by
that same carrier and primary in the absence of local insurances. The local
policy will be issued following local laws/regulations known as Good Local
Standards. The Master Policy will provide Excess/DIC/DIL coverage bringing
the entire program to U.S. standards.
Master Policy with DIC/DIL
(ACE)
Local Territory
(United Kingdom)
Local Territory
(France)
Local Territory
(Mexico)
ACE
ACE
ACE
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Current Practice
Most global companies today – from the middle market on up—have
some version of a controlled master program for both Property and
General/Products Liability inclusive of FVWC , Excess EL and AL.
Almost the “default” program structure:
 Cost
 Leverage
 Compliance
 Coverage
But not ideal in all respects.
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Top International InsurersHeadquartered
Considerations:
 Licenses/admitted network
 Pricing
 Policy Form
 Capacity
 Service timeliness, accuracy,
flexibility
 Loss Control
 Claims Handling
 Reporting
 Premium tax payment
 Technology
U.S. Headquartered:
 Chartis
 Chubb
 CNA
 FM Global
 Liberty Mutual
 Travelers
 Sentry
 Torus
 AWAC
 Navigators
Outside U.S.:
 ACE
 Allianz
 AXA
 Generali
 Lloyds
 Mapfre
 Mitsui Sumitomo
 Tokio Marine
 XL Global
 Zurich
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Emerging Topics & Hot Countries
 Program Structure Options – CMP vs. Project Specific (Brazil, India,
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China) vs. Regional Approach (LATAM, APAC, EU)
Americanization of liability – products, pollution, D&O, fidelity, class
actions
Regulatory pressures and changes – international compliance, tax, good
corporate citizen model
Economic challenges – issues with LOCs, surety, trade credit, financials,
Globalization of information/Social Media – Reputational risks
Inconsistency of social programs structures: uncertain borders, changing
workforce, global benefits worldwide
Construction Defect, Water Intrusion, Mold, Asbestos, Lead, Chinese
Drywall, Acoustical, Trusted external vendors/contractors
Sustainability/Green and environmental insurance
Canada, Brazil, India, China, Mexico, Mideast, S. America
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Best Practices
 Respect local culture and languages
 Disparity in labor forces and talent by country
 Be creative in finding solutions
 Flexibility, coordination and over communication can go a long way
 Plan for the unthinkable – war, evacuation, terrorism are very
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common in certain parts of the world
A safe worksite has a different meaning in various countries
Be prepared for delays
Manage the site as a builder not a contractor – be accountable
Empower the local project management to be creative and have
great flexibility
Thinking outside the box must be the norm…
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Best Practices
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Best Practices
 Non-admitted requirements – U.S. carriers may not be able to adjust
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a claim, issue a certificate or provide loss control if you do not
purchase a local policy in the country. Tax implications in case a
claim is paid to U.S. parent instead.
Cash before cover countries – if premium is not paid before effective
date, no policy, no coverage for claims – Japan, Mexico, China and
others.
Remember that Europe still has a largely unionized work force.
Be aware of OFAC regulations for U.S. firms.
Obtain your partner’s loss history to gauge the quality of their work &
staff.
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Best Practices
 Foreign policies in many countries have tacit renewal provisions – need 2-4
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

months before expiration to cancel or LTA – multiyear agreements (5+ years)
where the commission is fully earned at inception and often premium is too
Several countries impose a 10 year period for construction defects – Decennial
liability policy is common in Spain, France, other Napoleonic code countries,
Abu Dhabi and spreading to other countries
Use of independent contractors or other non employees in the construction
industry can lead to claims against the GL (for lack of safe equipment, working
premises, etc.) or DBA policy of the GC if the independent contractors do not
purchase their own wc/el insurance
Review the JV agreement for who is responsible for risk of loss by line – if this is
not clear, insurance policy may not respond – in China leases are often silent on
who bears the risk for the property insurance/building
European insurance buyers prefer lower deductibles and higher limits than U.S.
buyers, Chinese firms purchase lower limits and less insurance than U.S., when
working with your foreign partner, discuss who is in charge of insurance
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Willis and Construction
 Number one business sector for Willis and therefore a commitment
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to provide a truly global response
Over 750 construction specialists and over in 100 Global
Construction Services (GCS)
Over USD 3 billion of premium handled annually
12,000 construction clients
Largest PPP Practice of any broker – over 60 specialists globally
Broker to 6 of the top 10 world’s largest construction groups
Specialised claims consultancy operations located within GCS
The only broker with North American and Global (ex-NA)
Construction Practices
Over 98 dedicated construction safety personnel (28 in North
America)
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Willis International Network
Key Facts
• 120 Countries
• Ownership 70%- 41 correspondents
• Contractual agreement that network will comply with our standard network rules and operating procedures.
We can control and manage the services provided by our network brokers.
• The network is managed by a global executive committee
• Willis OnLine – Policy Summaries & Country Data
• Dedicated Network Teams In Each Country
• Detailed Client Survey
• Exposure collection and certificate requests online
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Global Construction Services
(GCS) & GCPG– Industry Leaders

Over 100 specialists and growing worldwide!
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Global marketing and a lead supplier to many of the major worldwide
insurers and reinsurers
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Specialist practice groups in Power, Utilities, Oil, Gas and Infrastructure

Leaders in Master Construction Programmes (for Contractors and Owners)
whether single territory, regional and global
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Research and Development operations delivering cutting edge material and
superior RFP response capabilities
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Pioneers of a state of the art claims protocol – creating new standards to
settling claims
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PFI / PPP industry leaders – over 500 concessions worked on
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Specialist claims consultancy – helping Willis clients negotiate better
settlements
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International Projects: Key Risks
and Issues
Driving a risk analysis strategy alongside services and solutions
•
Force Majeure: Preferred definitions in the contract
•
OCIP v CCIP: Contractors resisting more often
•
Increasing Project Costs: Avoid “value” in the sum insured
•
Supply Chain Management: Consistent quality controls
throughout the supply
•
Cost Overruns: Can liquidated damages really mitigate?
•
Claims Settlement: Still taking far too long. A Claims Protocol
needed!
•
Reputational Risk: More important than ever
•
Extremely Low Margins: Making all contractors nervous
•
Concession Contracts: (PPP etc.) seamless cover and products are
the way forward
•
Natural Catastrophes: Still testing capacity and cover
•
Project Finance: No less demanding on contract structure
•
Global or regional programmes: (for both Owner and Contractor)
straitening the curve
•
No sign of market hardening despite claims mounting up
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Examples of Recent GCPG
Successes
 Lukoil Russia Global Master Programme – USD 16 billion
 Qatar Rail Consultancy – USD 30 billion
 Caspian Pipeline, Kazakhstan to Russia – USD 4 billion
 Abu Dhabi Airport, UAE – USD 5 billion
 Asia Pacific LNG, Australia – USD 7 billion
 Bicentenario Pipeline, Colombia – USD 3 billion
 Antucoya Mine, Chile – USD 1.5 billion
 Jurau Hydro Electric Project Consultancy, Brazil – USD 8 billion
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Appendix—Glossary
 Admitted – Issued in the local country by an authorized insurer in
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that country
AD&D- accidental death and dismemberment
BI – Business interruption
BI – Bodily injury
CMP – “Controlled Master Program” Master policy issued in the U.S.
with corresponding local coverages issued by the same insurer
CAR – Contractors All Risks (can sometimes include liability)
Compulsory - Insurance required by law on an admitted basis.
Usually third-party risks but can be property in certain instances
DBA – Defense Based Act
DIC/DIL – Difference in Conditions and Difference in Limits –
Provides broad coverage and higher limits in the event local
coverage is not sufficient
Euro Policy – See FOS
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Appendix—Glossary
 Fronting – a primary insurer acts as the insurer of record by issuing
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a policy, but then passes the entire risk to a reinsurer in exchange
for a commission. Often, the fronting insurer is licensed to do
business in a state or country where the risk is located, but the
reinsurer is not.
FOS – Freedom of Service contracts issued in Europe to serve EU
countries
FVWC – Foreign Voluntary Workers Compensation
Global – One policy issued in the U.S. to cover exposures
throughout the world
IRB – The government-controlled reinsurance company that has
held a monopoly in Brazil for decades (no showing signs of losing it’s
grip on the local insurance market)
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Appendix—Glossary
 IPT – Insurance Premium Tax
 IVA – Value added tax (in Spanish-speaking countries normally)
 Local – the country outside the U.S. where the exposures exist
 Non-admitted – Issued outside the local country by an authorized or
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unauthorized insurer of that country
RAQ – Risk analysis questionnaire
Tacit Renewal – Policy is automatically renewed by the incumbent
carrier unless the required (30/90/180 days) notice is sent by the
insured
Tariff – A system of set rate regulations enforced by the local
insurance industry. (prevalent in Japan/Korea/Brazil as well as other
countries)
VAT – Value added tax
Doingbusinessin.org (Worldbank)
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Thank You!
fwampol@bharbert.com
tanja.maffei@willis.com
warmand@willis.com