Insurance probably isn't the first thing you think about when you think about an international expansion.
You're likely more concerned with whether your company has the infrastructure in place to become a global presence, and whether this new country you're entering really has a sustainable customer base. But at some point, a CEO or CFO may have "buying more insurance" on their to-do list.
In fact, it's just as certain as death and taxes. (You would think “insurance" might have made the cut when that expression was invented. But, alas.)
When you're expanding your business, you probably aren't going to be buying general liability insurance. There's workers compensation insurance, professional liability insurance, property insurance, your employees' health insurance, business interruption insurance and who knows what else?
So if you want to insure your international expansion, there are several issues to consider.
1. Imagine what can go wrong with your company's international expansion.
This little exercise can be helpful for your insurance planning purposes, but also for contingency planning.
As Robert Kleppinger, senior vice president of HUB International Northeast's International Business Practice, puts it, “Proper insurance coverage is critical to prevent a risk exposure or claim."
Some of the things that might go wrong include your production stopping or your facilities being shut down for government regulations. Of course, any of that could happen in the United States, Canada or wherever your headquarters is. But in certain countries, your risks of potential problems can go up.
Kleppinger advises getting robust insurance if you have an office or manufacturing plant in a nation known for “political unrest, cultural and religious differences and exposure to war or terrorism."
—Robert Kleppinger, senior vice president, HUB International
Jack Plaxe agrees.
“Two of the areas that are often overlooked are political risk and security risk," says Plaxe, a security, crisis and risk management consultant. He's also the founder and managing director of the Security Consulting Alliance in Louisville, Kentucky.
“Imagine opening a new facility and operation overseas, only to learn that the military has risen up and overthrown the democratically elected government in a coup d'etat," Plaxe says. "Citizens take to the streets and demonstrate, leading to a government crackdown and civil strife."
If your insurance doesn't offer compensation for a business interruption situation like that, your business will pay the price. Quite a few companies offer political risk insurance policies, which are specifically designed to help businesses in potential hot spots.
2. Assume that you will need more than one insurance policy.
Because you just might need it. As noted earlier, there are a lot of different kinds of insurance policies.
Todd Hess is the CEO of SailTime, a boat membership franchise with locations in the United States, Canada and Australia. His franchisees need to have both general liability insurance and marine insurance.
SailTime's customers need to have insurance, too.
“We need insurance for our clients that are captaining our boats even though they are not the owners of the boat," Hess says. "Our members need to have the same insurance coverage that a private boat owner needs, including asset damage and liability. Because they are not the boat owner, insurance companies have to include a special endorsement in the general policy to ensure our members, fleet managers and other staff are covered."
Depending on the risk your company takes on, odds are, you'll need multiple policies.
3. Budget carefully during your international expansion.
The costs for insurance will go up significantly during an international expansion. It's hard to say how much it will cost the average business at the outset, given that every company is different and will likely carry a multitude of policies.
While it may be tempting to assume that if you're expanding from one country to two countries, your insurance will double, it's unlikely to work out that way.
Take health insurance for example.
"In most cases, the U.S. is the most expensive country to provide private or employer sponsored healthcare," says Joe Spallina, senior vice president at Assurance, an insurance brokerage based out of Schaumburg, Illinois. "The intent in the U.S. is to provide comprehensive coverage. Outside of the U.S., this isn't necessarily the case.
"Most countries provide state-run insurance that have statutory benefits in place that may or may not be as comprehensive as a traditional U.S. employer sponsored plan," he continues. "As a result, a number of U.S. based companies purchase supplemental coverage for the international employees."
In general, what you're going to pay depends on the country you're expanding to and its cost of living.
"For example, to cover 50 employees in France is significantly more expensive than covering 500 lives in China, due to the cost of living differences between countries," Spallina says.
And then you'll want to decide if you want to go cheap or go big. There are reasons for either approach.
"You must consider your goals as a company—provide the minimum requisite coverage or purchase rich supplemental plans to be used as a recruiting tool," Spallina says.
4. Imagine what can go wrong if your insurance agent isn't up to the task.
Your business is in the midst of an international expansion. But is your insurance agent ready for that? Who you worked with in the early days of your business may not be the insurance agent or company you'll need to work with as your company grows.
Kleppinger says that some countries require the policies to be issued in the native language, with English as the second choice. As your company marches on with its international expansion, remember that your insurance needs may become more complicated. You don't want to be surprised and learn that your insurance agent wasn't knowledgeable about how insurance works in the countries you're now doing business in. When that's the case, you may find that your company isn't fully covered.
Kleppinger points out that many countries have their own unique insurance requirements. Take workers comp, for instance. In the United States, everyone has workers comp that all employers need to be concerned about.
And while workers compensation exists in other countries, that doesn't mean it works in the same way as in the United States.
"In the U.S., injuries resulting from commuting to and from work are generally not covered under workers compensation," points out Kerri Quigley, a vice president at Assurance. "In most European countries, they would be considered a workers compensation claim."
5. Make sure you aren't underinsured.
A 2017 report by the insurance company The Hartford found that most mid-to-large size companies are uninsured, underinsured or improperly insured when it comes to international exposures. (The report was based on 204 interviews with executives from companies making $10 million to $1 billion a year.)
Much of that's because many companies have a U.S.-based general insurance liability policy and not a foreign or global package policy, or a multi-national insurance program, the report noted.
There are a lot of different names for these policies, but they all specifically target businesses with operations around the world.
“An extensive international insurance program that is created to protect a large company can include many policies—local, foreign admitted, excess and ancillary coverages—and be a significant capital investment," Kleppinger says.
6. Prepare for your insurance needs to change.
Once you have the insurance landscape figured out for your international expansion, assume that you may soon have to figure it all out again.
“The available insurance landscape is regularly changing," Hess says. “In the past 10 years, we have changed insurance providers three times.
"Each change wasn't by choice but because the insurance company no longer would underwrite for marine businesses and activities including SailTime," he continues. "For example, our last insurance provider is pulling out of the marine market this year due to the significant claims caused by the two major hurricanes that hit the Caribbean and Florida. These weren't due to claims by SailTime but by other marine companies who had up to 65 percent loss of their fleets."
On that note, Hess points out one smart financial reason to be a safety-conscious company. If you can keep your employees, customers and inventory safe from harm and thus keep your claims low, your premiums will stay (relatively) low, too.
In any case, one thing is for sure: If your company is planning an international expansion, you're probably also in for an insurance expansion. It's as certain as death and, well, you know.
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