The importance of context

There is much debate around the topic of non-admitted insurance when it comes to global insurance programmes, but ultimately if sustainable solutions are to be provided, then it is necessary to understand and respect the regulations in the context in which companies buy insurance.

Understanding non-admitted insurance
The term “non-admitted insurance” has two components: “non-admitted” which simply means that the insurance carrier providing the cover/service is not licensed in the country where the cover/service is being provided; and “insurance” which is much less clear.

Most jurisdictions have, in some form or another, a definition for conducting the business of insurance, which is usually the trigger for local licensing requirements to apply. But this can differ significantly from country to country.

Some base their definition on the location of the risk – often, in these countries, the mere fact that the risk in question is located in the country is enough to trigger local insurance regulations. These countries typically require the foreign insurer to obtain a local licence in order to cover the risk even if all insurance-related activities take place outside the country.

Other countries’ regulations are more concerned with what insurance-related activities (such as soliciting insurance business, premium invoicing, claim payment, risk engineering and loss-adjustment activities) take place in their country and prefer to use this metric as a basis for defining the conduct of insurance business. In countries like these, it may be permitted to cover the risk from abroad, but any associated insurance-related activities would be prohibited without the requisite licence.

Local policies and DIC/DIL cover
Meeting customer expectations is never as simple as just considering whether the conduct of non-admitted insurance business is permissible or not.

Even in situations where non-admitted coverage is permitted, it might be preferable to issue a local policy, particularly if it is expected that there will be a high number of claims, or where local servicing such as insurance certificates or having a contact that speaks the local language would be beneficial.

It might even be preferable to have a local policy in the EU, when a cross-border policy using Freedom of Service (FoS) authorisations would be permitted. A company headquartered in Spain, for example, might not necessarily wish to have large factories or operations in Germany covered on an FoS basis just because such coverage is allowed. It may make sense for that German affiliate to obtain a local policy because they may want it in their own language, or they may have specific servicing requirements. It depends on what is needed, not just what is possible.

Equally, having a local policy in place doesn’t always remove the need to consider non-admitted insurance as this could play a role in a difference in conditions/difference in limits (DIC/DIL) context.

Exceptions to the rule
As with most rules, there are exceptions. The legislation of some countries, like Brazil and Mexico, expressly permits non-admitted insurance where comparable coverage is not available in the local market, or not at the levels required. This is helpful when covering emerging risks such as cyber, which are not developed to the same extent in every market. Some jurisdictions, like Denmark and Colombia, also provide for so-called “self-procurement” or “reverse solicitation” exceptions where a local entity “opts out” of local insurance regulations by approaching a foreign insurer for coverage. However, it can be a lengthy and onerous process to evidence some of these exceptions. In Brazil, for example, 10 declinations from locally-licensed insurers are needed in order to prove that the coverage is not available.

Granular approach required
In the end, all of the discussed aspects are important. You need to drill down and take a granular, structured approach in order to find the right solutions for a particular customer.

Ultimately, the success to structuring an international programme comes down to understanding what the client is looking for, how their operations are set up, and how they operate, while simultaneously respecting what is permissible under the various regulations in the territories where they operate.

It is also important to go beyond the main question of whether or not non-admitted risk coverage is permitted by exploring whether there are any exceptions to the general position or whether certain insurance-related activities (like claims payment or loss-adjustment activities) may be conducted.

We believe that having a structured, granular and consistent approach to examining the provision of non-admitted insurance is the best way to obtain the level of certainty and clarity that our underwriters and customers expect from us when writing international business. This is why Zurich developed its Multinational Insurance Proposition and MIA tool to guide our underwriters when structuring international insurance solutions so that we can provide our customers with the right programme to suit their needs.

Contributed by Madeleine Morris, head of international programmes legal & tax team, commercial insurance, Zurich Insurance Group