Understanding the costly insurance risks associated with overseas ventures.
Companies involved in overseas ventures too often overlook insurance costs and considerations until after deals are signed or sales are made. That can be an expensive oversight, since policies that protect against foreign product-liability lawsuits, international-transport damage, or even kidnapping and ransom may prove pricey enough to wipe out profit margins.
What's more, U.S. businesses with foreign interests must coordinate insurance coverage with other countries' laws. "Some countries not only require you to buy certain kinds of policies from local insurers but also deny your company the right to do business there if you're caught with coverage from a nonadmitted carrier," warns Marnix Guillaume, president of Corroon & Black International, a New York City-based insurance-brokerage firm.
Unfortunately, there's no universal method for determining what your company will need for foreign insurance. "We probably ship to 20 or 30 countries over the course of a year," says Michael Walsh, executive vice-president of Recreonics Corp., an Indianapolis manufacturer of swimming pools and aquatic equipment. "But there's nothing resembling a catchall insurance approach."
Walsh recommends doing due diligence on every foreign deal. "I'd talk to my corporate attorney to find out what kinds of risks I'm incurring on every type of contractual obligation," he says. Then I'd talk to my domestic insurance broker to see what I'm already protected against. Then I'd talk to my advisers in whatever country I'm doing business in, to analyze local laws and customs."
Since Recreonics' overseas deals run the gamut from importing and exporting to joint manufacturing ventures, its foreign insurance coverage resembles a patchwork quilt, with each deal's coverage custom-tailored to fit its particular needs. "If we're shipping overseas, I'm concerned with the perils of transportation, but those are normally covered as part of our freight transportation package," explains Walsh. "But if I'm importing goods to the United States that are made by a foreign manufacturer according to his specifications, then I have the additional concern of product-liability coverage. I'll insure the shipping risks but insist that he have his own liability policy to cover the U.S. market. And I insist on seeing a copy of the policy."
As prepared as Walsh is, there are plenty of unexpected risks for him to beware of. "We often see entrepreneurs who get a great idea for a business venture, fly overseas, and come back with a signed contract and a big new market," says Guillaume. "But if the deal was arranged by someone who lied on his customs visa -- by saying that he was traveling overseas for pleasure, not business -- the government of the other country can deny the validity of the contract, and an insurance company can later refuse to honor any claims."
-- Jill Andresky Fraser
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Below, some inside tips from Guillaume for U.S. companies navigating the international insurance market:
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Type of international venture Insurance issue Importer Can eliminate the need for transport insurance by arranging to assume ownership of the imported goods at the U.S. port of transit.
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Exporter Can skip transport insurance as above but must buy "foreign-products coverage" to protect against overseas product-liability lawsuits.
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U.S. parent with Depending upon each country's laws and
overseas plant or political climate, may need property
distribution coverage, workers' compensation
network (different policies for U.S. and foreign workers), auto liability, foreign liability, or other coverage. In Latin America or the Middle East, may need kidnap and ransom coverage.
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Joint venture with Must buy foreign insurance only if they're
overseas partner majority partners, but minority owners should request copies of all insurance documents to protect against lawsuit risks if the venture proves underinsured.