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  • ACE in the U.S. - A Leading Global Insurance Organization
    health and wellness standpoint In a nutshell there is a pronounced need for these executives to have greater control over these global exposures and more consistency in their treatment This market report introduces a solution a Controlled Master Program on par with similar programs addressing global property and casualty exposures This solution focuses on five key strategies to consider when evaluating present day global Accident Health A H insurance plans Introduction Consider the following scenario Three business colleagues from different countries and different subsidiaries of the same global company attend an industry event in Mumbai India As they leave the event together their car is struck by another vehicle Each employee is seriously injured and requires urgent medical care How Are They Treated Depending on the type and level of business travel insurance coverage the colleagues may receive an entirely different quality of care and assistance despite the fact that they all work for the same global company One employee may be immediately evacuated by air to a top hospital in the region while the other two may be sent to the nearest local hospital Each employee might also receive completely different compensation amounts for their hospital stay and injuries How could employees of the same global firm injured at the same time with similar injuries receive different levels of care and compensation When multinational enterprises purchase business travel accident insurance they often do so at the subsidiary level which is subject to local limitations causing significant discrepancies in travel accident coverage for employees of the same global firm The difference in protection for corporate employees from different subsidiaries can lead to reputational risk for the employer and can have a negative effect on employee morale and loyalty As companies expand into emerging markets and more of their employees travel for business the need for employers to focus on protecting all employees throughout the course of their travel intensifies A company s duty of care to its employees traveling on business has been increasing and companies need to show that they have taken steps to mitigate the risks to employees In such a scenario the best outcome is for all employees to be treated equally and to receive the same level of care and insurance compensation says Natasha Reoutt A H Multinational Business Manager at ACE This can be achieved by a carefully crafted controlled master program that incorporates Differences in Conditions and Differences in Limits DIC DIL provisions A controlled multinational travel insurance program eliminates disparate treatment of a policyholder s employees and provides each employee with access to quality care Whether employees are affected by a natural disaster a terrorist attack civil unrest an emergency sickness or a violent accident an employer needs to respond in a consistent timely and comprehensive manner A company s duty of care to its employees traveling on business has been increasing and companies need to show that they have taken steps to mitigate the risks to employees says Stéphane Baj ACE s

    Original URL path: http://acegroup.acegroupaccess.com/ace-perspectives/multinational-risk/business-travel-insurance-understanding-challenges.aspx (2016-02-13)
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  • ACE in the U.S. - A Leading Global Insurance Organization
    someone steals an individual s medical information they can perform medical identity theft purport to be another for medical services insurance fraud or prescription drugs Credit monitoring does not detect this type of theft and therefore will not alert you of this activity Another important coverage consideration is whether or not the carrier requires prior written consent before incurring costs to remediate a data breach event If the policy does have this requirement the buyer experience would be similar to someone participating in a health management organization HMO where the primary care physician serves as a gatekeeper to the covered services In both cases failure to obtain prior written approval may result in a denial of coverage While coverage may seem comprehensive when analyzing the affirmative grants of a policy it is important to review the coverage exclusions in full detail given the possibility of significant limitations Take for instance exclusions for losses arising out of non encrypted data Encryption technology is a great tool to protect data but even well managed organizations that can afford the cost and time for software maintenance rarely achieve 100 percent implementation due to human error If 99 of 100 employee laptops are properly encrypted there is always the risk that the one that isn t encrypted will be lost or stolen In this age of BYOD bring yourown device excluding encryption from coverage is unacceptable Another interesting parallel with an HMO is that some privacy policies require the use of a dedicated service provider leaving the buyer with either no choice or very limited choice as to which providers will handle the data breach response In other words the policy stipulates which law firm credit monitoring firm PR firm and so on has been explicitly selected for the respective service by the carrier This absence of choice and control may seem acceptable when making the purchasing decision but in the context of a data breach could mean the difference between a well managed response with minimal financial impact and favorable customer interactions and significant legal expenses with potentially long lasting reputational damage One size fits all may be appropriate for some baseball hats not privacy insurance Unfortunately many first time buyers of privacy insurance are unaware of these and other important distinctions from one privacy policy to the next Consequently they may be losing out on valuable coverage and advice from experts who can help reduce the threat of a data breach minimize its impact on the bottom line and protect the organization s most valuable asset its reputation More Than Just Insurance Unlike other types of insurance privacy insurance is more than mere risk transfer it combines insurance protection with expert resources to help policyholders prevent a data breach provide immediate assistance in the event of a breach and develop a strong defense against possible ensuing regulatory or legal actions Insurance carriers that have provided privacy insurance since its infancy possess a plethora of cyber related claims data providing rare insight into

    Original URL path: http://acegroup.acegroupaccess.com/ace-perspectives/cyber-risk/privacy-insurance.aspx (2016-02-13)
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  • ACE in the U.S. - A Leading Global Insurance Organization
    noroviruses and enteroviruses and such chemicals as testosterone methyl chloride and methyl bromide With regard to air quality President Obama proposed the development of new air quality standards in June 2012 to lower the amount of soot that can be released in the air Among recent EPA actions is a total of 6 8 million in fines levied against fuel transportation companies for failure to comply with a federal mandate requiring the companies to blend an ethanol derived biofuel into the gasoline and diesel they use The companies were required to mix 6 6 million gallons of cellulosic biodiesel into the gasoline and diesel in 2011 and 8 65 million gallons in 2012 Problematically the new biofuel is not yet available on the commercial market Environmental regulations in Europe have closely followed developments in the U S In 2004 the European Parliament and the Council of Ministers approved the Environmental Liability Directive ELD making companies financially liable for cleaning up environmental damage caused by their actions By 2010 all 27 member European Union EU countries had written the directive into their own national laws and since then some 50 cases have been brought under its principles Although the directive establishes a common baseline for the 27 members of the EU it takes environmental liability in new directions The law is broad covering damage to protected species natural habitats water and soil It further addresses a new class of pollutants genetically modified organisms released into the environment While the directive establishes a polluter pays standard similar to the Superfund law in the U S it does not apply joint and several liability Companies also are required to prevent and remedy environmental damage that appears imminent This contrasts with established environmental laws that call for remediation only in the aftermath of the incident The directive only applies to damage caused after April 30 2007 and there is no cap on liability It does however permit two exceptions to financial liability if the company causing damage acted in accordance with the conditions of an authorization provided under national laws or it operated according to the state of scientific and technical knowledge that existed at the time of the damage Finally the directive does not preclude member countries from having stricter environmental requirements The United Kingdom for example has written into law the Waste Electrical and Electronic Equipment Directive establishing rules for the collection recycling and recovery for all types of electrical and electronic devices In January 2012 a plenary vote of the EU upheld the directive Once the European Council formally approves the directive which is expected member countries will have 18 months to update their national legislation and implement the rules Despite the broad sweep of the directive each member state of the EU also has its own singular environmental laws In Germany for instance environmental laws govern different industry sectors insofar as air quality waste management soil protection and noise pollution sometimes with different terms and regulatory approaches And in France there is no requirement to purchase insurance or other means of financial security against the risk of environmental damage which differs with the approach in other EU member countries For multinational companies with wide ranging products and services compliance with the fractured and constantly evolving environmental liability regime in Europe is complicated Each time that an unexpected natural disaster or pollution accident rears countries typically enact new regulations to calm public fears This ceaseless progression takes many companies by surprise A survey of more than 700 companies in Spain for instance indicates a significant lack of awareness of environmental legislation the risks this poses to the organizations and the insurance protection available to absorb the exposures Countries in Asia Pacific and Latin America have enacted stricter anti pollution laws driven in part by a burgeoning middle class insisting on a higher quality of life A recent poll of Chileans for instance indicates that 69 percent believe environmental sustainability is more important than job creation Recent rules include tougher maritime pollution laws in Australia and New Zealand punitive environmental information disclosure rules in China new vehicle emissions standards in Brazil noise pollution regulations in Singapore and new plastic waste management regulations in India among many others D O and EIL Exposures As multinational companies seek acquisition opportunities in diverse global markets they confront ever wider and stricter environmental regulations shifting liability to the purchasing entity In many countries the acquiring company may inherit the target company s pollution exposures and the exposures of entities the target company previously acquired going back decades Assessing the scope of these successor liabilities is made difficult by poor record keeping practices and the fact that a company may have caused environmental damage when the action was unregulated in past and has since been deemed illegal Determining post acquisition environmental liability can challenge the best due diligence hence the prudence in managing ongoing risk through a multinational insurance program that absorbs the successor liabilities in a materially compliant manner Among the insurance policies in such a program is Environmental Impairment Liability EIL insurance which absorbs the financial costs associated with cleaning up accidental spills or leaks of pollutants thereby addressing the coverage voids created by the pollution exclusions in general liability and D O liability insurance products Premises Pollution Liability PPL insurance is a valuable adjunct particularly in circumstances where a target company owned facilities that generated or used hazardous substances PPL insurance provides coverage for first party liabilities for on site and off site environmental cleanup and remediation and third party liabilities arising from lawsuits brought by others for bodily injury property damage or environmental cleanup The liability protection afforded by PPL coverage can be tailored to the needs of the acquiring company customized for instance to absorb exposures related to sudden and accidental environmental damage or gradual pollution Acquiring companies also confront several unusual risk exposures that can be mitigated through insurance For instance since a target company s environmental liability policies may expire

    Original URL path: http://acegroup.acegroupaccess.com/ace-perspectives/environmental-risk/ma-risk-management-global-environmental-liability.aspx (2016-02-13)
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  • ACE in the U.S. - A Leading Global Insurance Organization
    acquisitions they often confront obligations to provide collateral that are associated with the target entity s insurance programs These obligations specifically involve past and ongoing financial risks emanating from the deductibles or self insured retentions that arise under the target entity s workers compensation automobile liability and general liability policies These liabilities in some cases may be absorbed by the target entity s wholly owned captive insurance facility Different state regulatory requirements can further complicate the treatment of these obligations to provide collateral Similar liabilities affect the acquirer in instances where the target entity has substantial surety bond requirements which now become the acquirer s obligation to fulfill and collateralize How best to address such collateral responsibilities from an efficient risk transfer standpoint is the subject of this ACE Progress Report The paper builds upon a series of other ACE Progress Reports assessing M A risks Executive ACE s Zacharias Aims GPS Radar At Multinational Ds Os April 2012 Executive While it is not surprising for a global insurance carrier representative to be focusing her attention on worldwide liability trends for ACE s Carol Zacharias finding U S companies fully engaged in discussions about these trends is unfamiliar territory Insureds did not have an interest in coverage or protection overseas years and years ago says Zacharias who is Deputy General Counsel for ACE North America referring specifically to a historical lack of demand for directors and officers liability insurance from U S multinationals for non U S directors and executives Some carriers tried to sell it and the insureds weren t terribly interested And many carriers weren t interested in it either she says In just the last four or five years the situation has changed dramatically and D O buyers are now seeking out information about global D O policy provisions including an ACE endorsement first introduced in 2009 that adds a fifth side Side E to the policy she says Understanding the Personal Exposures of Directors and Officers Understanding the personal exposures of directors and officers presents a particular challenge for multinational companies After all the extent of these individuals duties the range of potential lawsuits and the regulatory landscape vary widely from country to country First it is important to understand that a typical insurance policy for Directors and Officers D O insurance is actually a bundle of different coverages protecting distinct parties against different types of liability The first and most established type of coverage is a form of balance sheet protection that provides insurance to a company when it may indemnify its directors and officers for claims made against them But make no mistake This type of protection known as Side B insurance is intended for the company not its people In the 1990s the insurance markets introduced a new type of coverage for a company s exposure to securities litigation This Side C insurance is now a standard part of most D O policies But this is really another form of corporate balance sheet

    Original URL path: http://acegroup.acegroupaccess.com/ace-perspectives/executive-risk/when-risk-gets-personal-protecting-your-directors-officers-across-borders.aspx (2016-02-13)
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  • ACE in the U.S. - A Leading Global Insurance Organization
    on a locationby location basis Coverage terms conditions and financial limits for both admitted and non admitted insurance often differ Policies are susceptible to language interpretation issues that can cause claim payment problems and since local insurers may not be rated for financial soundness there may be a question as to an insurer s ability to pay claims and provide the requisite services Having varying policy effective and renewal dates and the need to access multiple claim facilities creates a convoluted claims administration process These various concerns create serious dilemmas for corporate risk managers and Human Resources HR professionals entrusted with overseeing business travel risks from an employee health and wellness standpoint In a nutshell there is a pronounced need for these executives to have greater control over these global exposures and more consistency in their treatment This market report introduces a solution a Controlled Master Program on par with similar programs addressing global property and casualty exposures This solution focuses on five key strategies to consider when evaluating present day global Accident Health A H insurance plans Introduction So far so good But there is something missing from this important dialog In short it fails to take into account the often significant role of excess insurance whether available locally in excess of the primary policy or as a tower purchased outside the locations where a company s risks are based When designing a compliant multinational programme considering the role and interplay of excess insurance either for traditional property or casualty exposures or more specialist D O environmental clinical trials and other risks needs more careful attention After all an excess insurance policy is governed by the same insurance regulations and tax rules that govern a primary policy and the same questions apply Where is the excess insurance policy issued What does it insure or not insure And perhaps most important of all where can covered claims be paid compliantly Two broad options exist Clients and brokers may actively seek full limits in local jurisdictions sometimes without asking whether the local primary and excess policy provides them with full cover as they are used to in their home jurisdiction Alternatively they may procure a local primary policy and then build an excess tower in the jurisdiction where the parent company is located or where excess capacity is traditionally procured Both options may be viable But they also need further analysis It would be ironic if in the desire to increase certainty the professionals designing the multinational programme failed to take account of the issues that may actually reduce it In a recent ACE survey targeting the multinational casualty insurance buying habits of 170 US multinationals 86 routinely purchased local casualty policies while 70 currently buy a local admitted primary policy at minimum cost with minimum limits However 50 of the respondents anticipate the need for increased local limits in the next five years Of those anticipating the need to increase local limits 78 acknowledge that local contractual obligations will be the primary motivator driving them to evidence higher local limits This is followed by sensitivity to local business customs and practices local compliance and local claims handling capabilities The take away from the survey is that as global trade increases potentially fueling higher local contractual obligations and heightened sensitivity to local business practices demand for evidencing higher local limits should increase commensurately So what are the excess insurance related issues that should be top of mind when considering a multinational programme First it is important to recognize some of the reasons why the benefits of local excess policies are not always clear cut The local market may not support the use of local excess policies in practice for example because many insurers may not actually have the data or the appetite to be excess of a local insurer on a follow form basis Alternatively even though appropriate limits may be purchased the local form may not insure the needed risks allowing for inadvertent gaps in coverage It is also worth bearing in mind that a local excess policy will often be in a different language making administration more complex Another practical issue may arise if there is not enough capacity or it may be prohibitively costly to purchase a local excess policy because a tower purchased elsewhere actually provides better economies of scale Yet before assuming that creating an excess tower outside the local jurisdiction is the answer it is important to take a step back Such an excess tower is generally going to be compliant in the jurisdiction where it is negotiated and placed Although there are a few countries that allow unlicensed insurers to insure local risks without any conditions or restrictions most countries are highly restrictive and place a varied burden of rules governing the international placement on the local insured or the local broker Excess insurance is no different in this respect As a result an excess tower created overseas although entirely compliant in the jurisdiction where it is issued is therefore rarely able to compliantly pay claims or remit the appropriate premium taxes in countries where the underlying loss has occurred So it quickly becomes clear that lack of advanced planning when structuring an excess tower in the parent s jurisdiction or in jurisdictions where excess capacity is efficiently available can introduce execution uncertainty potential adverse tax consequences and potential misrepresentation of locally available limits Drilling down into greater detail insuring clauses that directly name the local subsidiary affiliate or joint venture as direct insureds in the excess programme should be carefully considered so that they are not redefined as directly insuring those risks where claims are expected to be paid locally Otherwise when directly paying a claim in those jurisdictions the client or broker may incur unanticipated costs or the policy may simply not perform as intended Another important item to take into account when considering the role of excess insurance in a multinational programme is the certificate of insurance Another important item to

    Original URL path: http://acegroup.acegroupaccess.com/ace-perspectives/multinational-risk/featured-excess-insurance.aspx (2016-02-13)
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  • ACE in the U.S. - A Leading Global Insurance Organization
    direct insurers they are licensed as reinsurers This distinction means that the insurance team of client broker and insurer both at head office and at local level need to consider issues such as evidencing local limits on insurance and reviewing local claims handling protocols as well as investigating considerations such as the timely transfer of premiums and the issuance of local policies together with the corresponding remittance of local premium taxes Transparency of local policy arrangements In many Latin American countries Mexico Colombia and Chile for example and in countries such as Malaysia and Turkey knowledge of the local subsidiary s intent to procure insurance is regulated by so called Getting to Know Your Client rules These rules require the local insured or the local broker to disclose tax information to the local regulator before a local policy can be issued and premium collected A number of countries such as India Japan Korea and many countries in Africa are cash before cover countries where a local policy cannot be issued unless and until the insurer first collects premium In other countries such as Argentina Brazil India Japan Korea and Ukraine a firm order or application form must be completed by the local subsidiary before a local policy is issued Furthermore in China Russia and Ukraine the local policy must be approved and signed by the local insured in order for the policy to be valid and effective In relation to captive insurance tax issues are now being highlighted in greater detail Captive multinational reinsurance programmes are generally designed and built centrally at the insured s parent s level with cost of local premium centrally allocated by the parent to its local subsidiaries with those subsidiaries agreeing on the allocations in order to purchase local policies as part of the multinational insurance programme The key takeaway for a captive owner is that the thoroughness with which they respond to local rules will ultimately determine the timeliness of local policies being issued local premiums being collected local taxes being remitted and permitted premiums being ceded to the captive thereby driving an important aspect of the performance of their global captive insurance programme Transparency of cash flows Another area where transparency is often particularly important is cash flows Since premiums are paid in different countries the funds that are eventually remitted to the captive may be impacted by a number of factors Foreign exchange of course impacts the transaction but this factor may be compounded by others such as when the local country has a premium withheld obligation or when there is a restriction on the export of local currency Argentina provides a useful case in point In August 2014 for the second time in thirteen years Argentina defaulted on its debt This default poses significant hurdles for multinational insurance programmes with reinsurance placed with captives outside Argentina Responses to the following questions will determine whether the policy issuing insurer has an up to date finger on the pulse insight into local expectations and can help navigate the complex landscape presented in countries that may have similar characteristics to Argentina such as the economic and political environment in Venezuela where many multinational companies have insurable interests These questions many include How will premiums received locally be reinsured outside the local country How will the local currency be converted to a foreign currency What consents are required and from whom Can local risks be insured locally if premium for those risks is paid outside the local country in order to mitigate the adverse consequences of a local currency crisis Which party the captive local insurer or local insured is ultimately responsible for the premium payment and remittance of taxes An ability to respond to questions such as these and to be able to access up to date and relevant local information is increasingly critical for a captive owner in today s globalised marketplace Multinational Captives Should be Aware of the Implications of Increasing Scrutiny of Tax Capital and Solvency Tax has recently become the subject of a very public debate as evidenced by the Public Accounts Committee PAC in the United Kingdom and its review of the actions of corporations such as Google and Starbucks as well as wider commentary around base erosion and profit shifting BEPS 4 In relation to captive insurance tax issues are also now being highlighted in greater detail FATCA and other US tax issues In the United States the Foreign Accounts Tax Compliance Act FATCA is a good example of legislation that impacts captives all over the world FATCA is a law passed in the US that targets tax evasion by US taxpayers with offshore accounts The objective of FATCA is to obtain information on transactions that use offshore accounts The outcome of not complying with the requirement to provide transaction information is a 30 withholding tax on the amount transacted At first there may appear to be little of interest or impact on say a European captive owner However any captive with a multinational insurance programme that includes US origin risks and premiums is impacted Whether a European captive is construed as a Non Financial Foreign Entity NFFE or a Foreign Financial Institution FFI as defined by FATCA it will be required to take certain administrative steps to avoid punitive tax treatment from the US authorities Failure to comply with the requirements which include the completion of specific forms such as W 8BEN E will result in US origin premiums that are transferred to the captive being reduced by the 30 withholding tax payable to the US Internal Revenue Service IRS Captive insurance arrangements also continue to be scrutinised for United States federal income tax purposes as demonstrated by the January 2014 US Tax Court judgement in Rent A Center Inc and Affiliated Subsidiaries v Commissioner The case involved a captive insurance arrangement that was challenged by the IRS The Court in a divided 10 6 decision found that for federal income tax purposes a parental guarantee from a parent to its captive could form part of a valid insurance arrangement While the IRS has not indicated whether it will appeal the decision an appeal is now unlikely given the memorandum issued by the US Tax Court on 29 October 2014 In T C Memo 2014 225 Securitas Holdings Inc v Commissioner the US Tax Court rejected IRS arguments relating to parental guarantees and risk distribution The US Tax Court determined that the captive insurance arrangement put in place by Securitas had shifted any economic consequence of risk and that this risk shifting was not vitiated by the parental guarantee The US Tax Court further held that risk distribution must be viewed from the insurer s perspective and that it is the pooling of exposures that brings about the risk distribution and not who owns the exposures This decision provides captive owners with greater certainty on what is considered insurance for US federal tax purposes compared to the divided opinions expressed in the earlier Rent a Center decision Capital and solvency gross reserving Tax issues such as the US examples mentioned above are only one aspect of the wider compliance framework affecting multinational insurance captives in the myriad jurisdictions in which they operate In a number of countries regulators permit the local insurer to reinsure all or part of the exposure to a foreign or non admitted reinsurance company but require the local insurer to hold capital as if the reinsurance had not taken place This gross reserving practice may penalise the local insurer especially for large premiums and where there is a large outstanding loss reserve While the premium is remitted to the captive the policy issuing insurer must use its own capital admitted assets to represent the gross reserves In such cases the policy issuing insurer may require the captive to deposit its share of the reserves in a form that is acceptable to the regulators usually a letter of credit or a specific trust instrument Gross reserving rules can be found in the US Canada and Australia but can also have an impact on policies issued in other countries if the local insurer is a branch of a company based in a country where such regulation applies Solvency II Solvency II regulatory capital proposals may significantly increase the capital and compliance burden for the European captive market Because the measurement criteria for Solvency II have not clearly distinguished a captive from a general insurer solvency requirements for captives as currently drafted pose significant challenges to them compared with other insurance entities Owners of captives that must comply with Solvency II will endeavour to strengthen risk management and governance functions and where needed to strengthen capital reserves However captive owners must also be cognisant of the potential impact their own capital standing may have on the global policy issuing insurer ceding local risks to the captive Consideration should be equally given to the financial impact that multinational insurance programmes may have on the counterparty risk capital requirements that may be levied on the global policy issuing insurer and the corresponding effects these requirements may have on the economics of a captive multinational insurance programme All three of the above scenarios demonstrate the growing convergence between legal financial compliance and risk management functions within many businesses They also emphasise that it is critical for owners of captives to have more than a passing familiarity with the regulatory requirements of the jurisdictions in which they operate Captive owners increasingly need access to their own in house finance tax and compliance resources and the support of a multinational insurer with sophisticated capabilities in order to design an optimal global captive insurance programme Captives Should Ensure That the Ability to Value Adjust and Pay Increasingly Complex Claims Across Borders is Incorporated within their insurance programme According to ACE s September 2014 Risk Briefing some two thirds of European risk managers say that they are experiencing more claims outside their home market and three quarters say that their multinational claims experience has in general become more complex It is no wonder then that the same research shows that the greatest priority of all for risk managers when choosing a policy issuing insurer is effective claims handling It is also noteworthy that the priority of accurate and insightful reporting of claims is also a major consideration Which of the following are or would be most important when seeking a fronting insurer for your captive s multinational risk 1 Effective claims handling 56 2 Quality of service generally 53 3 Accurate and insightful claims reporting 43 4 Ability to move claims through to the captive efficiently 30 5 Global network and presence 29 6 Ability to implement multinational insurance programmes using a captive structure 21 7 Strong track record as a fronting insurer 15 8 Flexibility of captive models and solutions 12 9 Flexibility of collateral requirements 4 ACE European Risk Briefing Changing Multinational Risks and Evolving Solutions September 2014 Transparency in surveying valuing and paying multinational insurance claims For captive owners the ability to use the captive to manage consolidated loss information about their subsidiaries affiliates and joint ventures is critical However the typical subjects of contention between a policy issuing insurer and a captive revolve around claims control and loss reporting To mitigate potential problems both insurer and client must strive to establish clear responsibilities for all matters that relate to claims handling Having a robust claims servicing agreement with agreed claims bulletins claims protocols claims procedures and transparent servicing standards with identified local and central points of contact is key to managing both communication with and the expectations of those who are handling complex claims often many thousands of miles from where ultimate decision making may lie One example of the above is provided by contingent business interruption CBI insurance which is frequently reinsured to captives because this protection is purchased for the financial health of the enterprise sometimes arising from a single covered loss at a specific location Understanding how CBI losses will be valued locally and then ultimately paid is an important component to be considered when structuring a captive insurance programme During the Thailand floods in late 2011 and the Japanese tsunami and earthquake in March 2011 many CBI claims were paid outside Thailand and Japan at the parent level for multinational corporations that were ultimately exposed to the catastrophes The best claim results were those where the insurer broker captive manager risk manager and the insured s finance and tax team worked collaboratively to understand how and where the insurance would respond Understanding how third party administrators and adjusters if applicable will work with a partner insurer to adjust and value claims is a further factor that underlines the importance of effective claims management for a captive insurer Transparency in loss reporting Loss reporting is yet another area where global insurers can differentiate themselves and provide best in class service for their captive owner clients Captives often insure primary layers where loss activity may be frequent Consequently the quality of the loss data is paramount not only for accounting purposes but also for the risk management analyses regularly performed by the captive manager While captives want loss information to be reported in a detailed and timely fashion the nature of multinational programmes poses particular challenges for the data gathering process for example differences in claims IT systems between countries differences in claims handing policies between countries for example different approaches in reserving practices between owned local insurers and non owned policy issuing insurance partners can result in inconsistent data differences in language for example where details of the claim such as cause of loss are entered into the claims system in the local language consistency or lack thereof in coding or tagging claims data for example tags such as the location of the incident or the name of the business unit can be useful for a loss analysis but are rendered meaningless when inconsistently applied between countries Credit Risk Which is Inherent in Captive Multinational Insurance Programmes Should be Fully Discussed by the Relevant Parties in Advance of Implementation Captive owners and their insurer partners should have an upfront and open dialogue on credit risk to ensure that the captive understands how the insurance partner approaches the evaluation and management of credit exposure As companies continue to expand overseas this question becomes more important because changes in a company s multinational exposure may dramatically impact the scale and duration of credit risk Changing credit risk profiles In the majority of captive led reinsurance transactions the policy issuing insurer assumes the credit risk of the captive reinsurer Indeed an insurer may not avoid paying a validly insured claim under a policy by arguing that it has not yet been able to collect any reinsurance proceeds from the captive The type and amount of collateral required by the policy issuing insurer can be significantly impacted by additional credit risk factors that come into play because the exposure being ultimately reinsured to a captive is multinational in nature How a policy issuing insurer values the credit exposed to the captive is a fundamental evolution in multinational programmes As risks become more technically complicated and geographically spread and with the advent of Solvency II imposing capital adequacy standards those insurers that do not ask for credit protection today either in the form of cash placed in a trust or a letter of credit in addition to a parental guarantee at some point will re evaluate their appetite to assume credit risk and provide the cost of capital used to support captive insurance programmes Captive owners should be prepared in kind to respond to questions related to managing their credit risk towards the policy issuing insurer Captives Should Work With Their Insurance Market Partners to Determine Appropriate Local Limits That are Consistent With Optimal use of Capacity Both Locally and Globally One of the key benefits for a captive in using an effective multinational insurance programme structure is the ability to assure consistent amounts and types of coverage worldwide all of which will ultimately be reinsured to the captive Historically some risk managers have for certain lines relied on minimal local policy limits because they believed that the master parent policy would provide the appropriate cover However it has emerged in recent years that this approach may not be robust enough in an increasingly complex regulatory environment The advice from insurance experts has been to implement more local policies with higher limits commensurate with the risk assumed which in turn has led to heightened aggregation risk particularly for lines of business that provide a relatively low primary capacity such as casualty and other specialist liability risks Captive owners must more often nowadays consider this potential aggregation risk to determine who is ultimately bearing it and more importantly whether it is the captive bearing that risk Building guidance in order to determine appropriate local limits for liability lines of insurance In ACE s May 2014 survey of the casualty insurance buying habits of 176 US based multinational clients 86 of respondents said they routinely purchase local casualty policies while 70 currently buy a locally admitted primary policy at minimum cost with minimum limits However 50 of respondents anticipate the need for increased local limits in the next five years and of this group 78 acknowledge that local contractual obligations will be the primary motivator driving them to put in place higher local limits A heightened sensitivity to local business customs and practices local compliance and local claims handling capabilities is also driving this change What the ACE survey highlights is that as global trade increases potentially fuelling higher local contractual obligations demand for establishing higher local limits should increase commensurately Those relying on the excess policy limit evidenced in the insurance certificate to provide services to the insured or those permitting the insured to conduct business in the jurisdiction based on the evidenced limit may be disappointed A related challenge that applies

    Original URL path: http://acegroup.acegroupaccess.com/ace-perspectives/multinational-risk/captive-report.aspx (2016-02-13)
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  • ACE in the U.S. - A Leading Global Insurance Organization
    t get paid unless they can collect an award and this encourages them to target as wide a potential defendant base as possible in order to ensure the biggest potential recovery pool possible This is known as the shotgun or scattergun principle As each defendant must defend himself against the action the impact on overall legal costs is significant Although some onlookers have argued that under such circumstances an attorney should be less likely to take on a products liability case unless he sees a reasonable chance of winning the fact of the matter is that an attorney can still make a fairly good recovery even when a case is weak because many defendants may be willing to settle for the nuisance value of the case which cumulatively could still be substantial Overview of the US legal system The fact is that when a product is sold into the US market the manufacturer distributor is bound by the laws operating there In order to better comprehend the US legal system a brief overview may be helpful There exist two separate court systems in the United States a Federal Court System and a State Court System While the fundamentals of operation and procedure are essentially the same in either system they are established in separate and distinct ways and may function somewhat differently Most US defence attorneys recommend that their clients try to avoid being tried in state courts if at all possible because federal courts and juries are considered to be less sympathetic to plaintiffs Product Liability law The following outline is intended to provide a general understanding of the basic product liability law as it applies in the US It is not meant to be a legal discourse and anyone involved with the marketing of a product in the USA is strongly advised always to seek appropriate professional legal advice In general any manufacturer who places a product on the US market irrespective of his country of domicile has a non transferable legal obligation to supply a safe product In designing a safe product in accordance with this definition the manufacturer is expected to have complied with all of the applicable US National and Industry Codes and Standards and Product Safety Laws as an absolute minimum independently evaluated any risks reasonably associated with the product and anticipated all of the hazards arising from both the intended uses and foreseeable misuses of the product This foreseeable misuse obligation may be considerably broader in the US than the requirements of most other territories to which a product is exported provided adequate warnings labels and documentation Manufacture to customer specification It should not be assumed that just because a product has been manufactured and supplied in accordance with a customer s specification the manufacturer is absolved from any legal liabilities He must still take reasonable steps to ensure that the product will be safe in use and to advise his customer of any potential difficulties In this context the application of the reasonable standard will be in accordance with US caselaw Strict Liability In order to hold a defendant liable on the basis of strict liability the jury must find that based upon the evidence the product was defective and unreasonably dangerous at the time it left the possession and control of the manufacturer On this basis the jury is directed to focus on the product itself irrespective of whether the manufacturer was negligent in making the product In defending against such a claim it is important to focus the jury on the date that the product was manufactured not on the date of the incident which could be years later Custom and practice in the industry state of the art with respect to technology available and compliance with standards and regulations form a basis for the defence of this type of claim A strict liability claim is generally considered to be the easiest type of liability to prove because a product can be found to be defective and unreasonably dangerous under the law without needing to prove that a manufacturer has been negligent on the other hand a manufacturer cannot be proven negligent without first proving that the product is defective and unreasonably dangerous Negligence The fundamental legal definition of negligence is based on the following two premises 1 The manufacturer owes a duty to produce a reasonably safe product 2 The manufacturer breached that duty The defence in a negligence claim becomes more personalised than that in a strict liability claim The conduct of the engineering staff in developing the product the research and testing of the product by the manufacturer and the effort of the manufacturer in attempting to market a product that is reasonably safe are all to be considered Furthermore the knowledge of the manufacturer plays a part in a negligence claim whereas in a strict liability claim it does not If a manufacturer does his best to produce a safe product and does not have knowledge of some unsafe aspect that is likely to cause injury and was not foreseeable then the manufacturer is unlikely to be held to be negligent Causation In order to find a defendant liable for damages to a plaintiff not only must the jury find strict liability and or negligence they must also find causation Causation is a finding that the negligence or defect in the product was a cause of the particular injury claimed by the plaintiff A manufacturer can be found to be negligent and a product can be found to be defective but if the jury finds that the negligence or defect was not a cause of the plaintiff s injury then there is no liability Plaintiff s Contributory or Comparative Negligence In some US states a claimant will be barred from recovery if his own negligence caused or contributed to his injury this is known as contributory negligence Most jurisdictions however apply a standard of comparative fault where a claimant s recovery may be reduced or even eliminated depending upon the extent to which the claimant s own negligence contributed to his injury Knowing how these standards will be applied in a given jurisdiction is important in defending a claim Damages In addition to making a determination as to liability and causation the jury is also responsible for determining the amount of damages that a plaintiff has incurred as a result of his injuries Damages are broken into two types 1 Compensatory These are the damages that are determined by the jury to compensate the plaintiff for his injuries They typically include economic damages for medical bills and past and future wage loss and non economic damages for pain suffering inconvenience and disability The economic damages are generally well defined and usually are not the subject of great disputes at trial The non economic damages however are not well defined The jury is required to assign an amount to compensate the plaintiff for his pain his suffering and the like This area of damages is directly affected by the way in which the defence of the liability case is put to the jury If the jury does not believe the defendant s case or is upset with the defendant for its conduct during trial this amount will be much higher than if a good defence is presented This amount is also affected by any degree of sympathy that the jury might feel for the plaintiff Non economic damages are not punitive damages but if a jury does not like the defence of the case as presented by the defendant this amount can take on some of the characteristics of punitive damages 2 Punitive Damages These damages can only be awarded against a defendant under circumstances where the jury finds that the conduct of the defendant was so grossly negligent or malicious that an amount is determined by the jury to punish the defendant It is up to the trial court judge to determine whether punitive damages get submitted to the jury at all a proper defence limits the likelihood that they would even be submitted to the jury for consideration In the event that punitive damages are submitted the jury must assign an amount of money that they feel will punish the defendant to the extent that such conduct will not occur in the future Punitive damages have received a great deal of attention as they have often been the cause of some of the very large court awards made in recent years They are a real threat to a defendant in that in most cases they are uninsurable under US policies Some states specifically prohibit the insurance of punitive damages and most US insurance policies will exclude them in any case They are treated in much the same way as a penal fine against the defendant The best defence to punitive damages is to present a strong personal defence that lays the basis for the court to strike any punitive damage claim before it is submitted to the jury There also exists the fundamental law that punitive damages require a finding of negligence as a basis as they are founded on the conduct of the manufacturer and cannot be assessed on the basis of strict liability alone While several jurisdictions allow punitive damages in strict liability many jurisdictions require a negligence finding as a pre requisite to any punitive damage claim It is important early in any products liability case to clearly define the stance on punitive damages adopted by the law of the state in which the case is pending Once the law is known the evidence necessary to defeat such a claim can be appropriately presented Appeal An adverse verdict at the trial court level is not necessarily the end of the case Both parties are afforded the opportunity to appeal the case to a higher court to have an adverse result overturned or the level of award modified Types of claims brought by plaintiffs The plaintiff in order to recover damages from a defendant must bring his case under the law as outlined above The plaintiff has the burden of proving his case by a preponderance of the evidence Punitive damages must generally be supported by clear and convincing evidence which requires a showing by the plaintiff that the conduct of the manufacturer is not merely negligent but is so outrageous and reckless that it ought to be punished In order to fit within the law as outlined above a plaintiff will generally fit his her claims into one of the four following types 1 Negligent defective design Most products liability cases involve this type of claim The plaintiff claims that the product was defective and the manufacturer was negligent because the design of the product did not include some safety device or system that would have prevented the accident Interlocks safety equipment warning alarms and the like fit into this category 2 Negligent defective manufacture Relatively few products liability cases involve this type of claim as these generally result under circumstances where the product fails causing injury A weld failure or cylinder failure would be common examples of this type case These cases are somewhat more difficult to defend because a manufacturer needs to explain how the product failed and why Product failures generally result from misuse abuse and or lack of maintenance and inspection 3 Failure to warn Most product liability cases will include this claim in addition to a defective design claim The plaintiff will claim that either in addition to or as an alternative to the omission of some safety device the manufacturer should have provided a specific warning to the plaintiff The plaintiff further claims that the warning would have been followed by the plaintiff and that by following the warning the accident would have been prevented This type of claim is often based upon a fair amount of speculation and conjecture and would need to be defended with a human factors or warnings expert recognised in the field of warnings and instructions 4 Post sale duty to warn or retrofit Under this type of claim the focus is shifted from the date the equipment left the possession and control of the manufacturer to the date of the injury The plaintiff will contend that even if the product was not defective when it left the possession and control of the manufacturer and that the manufacturer was not negligent at that time the knowledge gained by the manufacturer between the date of manufacture and the date of the injury should have required some additional warning and or some additional retrofit of a safety device to protect the plaintiff The plaintiff will contend that the failure of the manufacturer to retrofit with a safety device or additional warning is negligence Note that under this type of claim the plaintiff should not be allowed to recover under the theory of strict liability this claim is based purely on the conduct of the manufacturer With this general overview of the products liability law in the United States it is possible to evaluate and implement a comprehensive products liability loss prevention programme Defences 1 Negligence There are a number of defences to a claim of negligence These include The plaintiff s injury was not reasonably foreseeable The seller did not breach its duty in that the design manufacture or marketing of the product were reasonable under the circumstances The plaintiff did not sustain a compensable injury e g a false claim has been lodged or the injury has not physically occurred and so cannot be legally recovered e g the plaintiff has not developed cancer but fears that he or she will in the future The plaintiff s injury was not caused by the seller s negligence the plaintiff sustained their injuries from something other than the product supplied The seller complied with relevant industry standards and customs and practice Caveat A defendant normally may introduce evidence that it complied with applicable industry standards and customs to show that it exercised reasonable care in the design manufacture or marketing of its product However compliance with industry standards and customs does not automatically absolve the defendant from liability The jury weighs that evidence together with other evidence presented in deciding whether the care exercised by the defendant was sufficient under the circumstances The plaintiff was partly to blame for the incident i e Contributory Negligence a manufacturer may minimise its liability by proving that the plaintiff was partially at fault for the injury Although specifics vary from state to state a plaintiff generally cannot recover against a defendant if the jury finds that the plaintiff is more at fault than the defendant Even if the plaintiff is less at fault the plaintiff s recovery usually is limited by the extent of his or her own negligence Thus if the plaintiff is 20 per cent at fault and the defendant is 80 per cent at fault the plaintiff s recovery may be reduced by the amount of his or her own negligence or 20 per cent A plaintiff may be deemed to be at fault if The plaintiff failed to exercise reasonable care in the use of the product The plaintiff misused of the product or The plaintiff failed to read or follow warnings or instructions 2 Strict liability As discussed strict liability claims can be more difficult to rebut as they focus on the product and not the actions of the supplier However a defendant may defeat a strict liability claim by challenging the evidence that the plaintiff has presented in support of the claim The defendant may use similar rebuttal as used in negligence claims such as product misuse contributory negligence etc However in addition a defendant may benefit from any of the following arguments The product was modified after it was sold it s important to note that alteration or modification may not relieve the seller from liability if that alteration or modification was reasonably foreseeable and the seller failed to account for the risk such as warnings State of the art a seller may demonstrate that its product employed the current technology and know how that was available at the time the product was manufactured Improved technology and information that was not available or feasible for use until after the product was sold thus removing the plaintiffs allegations that the product was defectively designed at the time it left the seller s control Industry custom industry standards and government standards a seller may also be allowed to introduce evidence that its product complied with industry standards or custom in the industry to rebut the plaintiff s claim that the product was defectively designed Some Key Elements of the Legal Process For a more detailed description of the legal process professional advice should be sought Suffice it to say that the correct process must be followed by the plaintiff for a legal action to have status in the courts Similarly the defendant must also abide by the rules of the legal process in order to mount an effective defence For example failure to respond to an action can lead to a default judgment for the plaintiff with no subsequent right on the part of the defendant to contest the finding It is imperative that full product safety documentation is kept ready for inspection and that documentation procedures are effective Although it is not the intention of these guide notes to go into detail about the US legal process there are a few unique elements of the process that merit further discussion namely Discovery The discovery process is that part of the US legal process whereby the parties are required to provide information relevant to the dispute to the opposing counsel with limited rights of reply or cross examination This part of the process can also apply in territories outside of the USA such that a UK Europe based defendant could become involved in giving a deposition in the UK Formal discovery has

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    largest social networking sites in the social media universe Facebook boasted more than 750 million people actively using its service If it hasn t already Facebook will soon grow twice as large as the population of the United States which currently hovers at 311 million Even so the vast majority of companies did not immediately join the social media revolution Instead they spent varying amounts of time observing from the sidelines But when the first wave of companies did join it was because they anticipated the significant business benefits of this brave new world where the personal the professional and the commercial combine seamlessly and in the blink of an eye Many others however remained unconvinced often because of a lack of information and an unclear understanding of how social media could be beneficial What is this social media thing all about they wanted to know And why should my company care Back to Topic ACE Perspectives Cyber Risk Related Content Cyber Preparing for the Inevitable Data Breach What to Do Before Sensitive Customer and Employee Data is Breached Stolen or Compromised Cyber Panelists discuss developments in state and federal laws requiring more disclosure from companies that experience data breaches Cyber Data Risks for Midsized Companies Crain s Cleveland Business October 2011 Cyber When it comes to protecting one s house against intrusion the common wisdom is to think like a burglar Criminals are adept assessors of risk The house on the block without a fence a dog and an alarm system vs other homes that have such security measures is the one to burglarize The same applies to Internet hackers Lots of companies have a tantalizing storehouse of personally identifiable information on customers and employees but the ones hackers are going to attack are those deemed to be the

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