Embargo rules add uncertainty to international programmes

Participants in a day-long meeting organised by FERMA, the Federation of European Risk Management Associations, and AIDA, the international insurance law association, discussed the difficulties that subscribers face in complying with complex embargo rules and how their reactions have added to complications in insurance contracts. Harry Daugird, Global Senior Advisor Risk Management at ABB, noted that the toughening of embargo policies against Iran early this decade generated a number of sanctions clauses created by insurance companies to reduce their exposure to the risk of breaching embargo policies. But in the view of many buyers, he said, the insurance industry had a "hidden agenda" in place and made use of the new clauses to limit coverages on existing policies.hideA lack of coherence also made the lives of buyers more difficult, he noted. Companies came up with a variety of sanctions clauses, with wordings varying widely. "It is a bureaucratic nightmare when you have to introduce these regulations and provisions to an insurance programme and its different layers," he said. "It has all caused widespread confusion among insurers and the insured, and this confusion remains today." Mr Daugird added that embargo regulations are very complex, and the authorities tasked with enforcing them are highly unpredictable, which does not help to add clarity to the market. The complications created for insurers and buyers by the embargo rules were exemplified by Mandfred Wandt, a law professor at the University of Frankfurt am Main. He pointed out that embargoes against Iran have affected the provision of insurance to companies or entities involved with the production of oil, gas and petrochemicals in the country. But they also encompass companies indirectly linked to those activities, a status that is not always easy to ascertain. For instance, the embargo rules do not make clear whether the provision of hull insurance or reinsurance coverage to companies that are involved in some way with the transportation of such products is allowed or not. The situation becomes even more complicated because countries like India and China, which are not part of the American and European embargo policies and continue to trade Iranian oil and gas, have become vital parts of the operations of large global companies. All in all, Mr Wandt said, the rules raise manifold questions of interpretation that make it very hard for insurance companies to guarantee the compliance of their contracts. This is an issue that concerns insurance companies as the consequences of an infringement, even if it takes place indirectly via the commercial relationships of a client, can be brutal. The enforcement of the EU laws are the responsibility of national authorities, and therefore can vary from country to country. But Mr Wandt remarked that in Germany, for example, a breach of the embargo can cause the total invalidity of a contract. In some countries, infringements can also result in criminal charges against executives. Obtaining clarification from national authorities is not an easy job, according to participants to the conference. Executives from French insurance companies related how officials from the country's Treasury have frequently failed to provide information about the application of EU embargo rules on insurance contracts. One recent case involved the sale of insurance for a company that traded with embargoed entities in the Ivory Coast, which was recently the target of European sanctions. The insurance company involved was told by the French government that it was able to collect premiums from clients that worked in the West African country, but not to pay a claim if a loss took place. The situation becomes even more complicated because another government that has imposed embargoes on Iran and other countries is the United States, a vital market for multinational corporations. Robert Walsh, the Global Financial Crime Officer at AXA, pointed out that, in the case of American sanctions, insurers need to be aware not only of the national embargo policies, but also state-level legislation in key states like California, Florida, New York and New Jersey, which have imposed their own punishments against companies that trade with Iran. Furthermore, the US government is keen on punishing even non-American companies that are found in breach of the embargo on Iran. Penalties can be as severe as a prohibition from working with the American financial market. "That is a corporate death penalty," Mr Walsh stressed. Insurance companies have been able to avoid serious breaches of US embargoes so far. But Mr Walsh said there are rumours that a major insurance investigation by American authorities is under way, and that it involves the aviation insurance industry, with a focus on the London market. "It has been said that it will be a big case, when it hits the headlines," he warned.

Embargo rules add uncertainty to international programmes

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