Underwriting International Risks: What are the Challenges?
Recent decades have seen a massive leap in globalisation, with better transport links and electronic data transfer making vast distances almost insignificant. With these changes it has become increasingly common for businesses to have an international aspect; perhaps offering services abroad, investing in companies from other countries, or importing goods from across the world. While British businesses are expanding their services abroad, there are significant repercussions for the insurance industry. Insurance companies are having to consider in detail the risks that they are underwriting, as more and more of their customers become international.
What additional risks need to be considered?
Working across language barriers is one significant aspect of international risk. Worldwide, there are 200 languages that have three million (or more) speakers, with an additional 1000 languages being spoken by more than 100,000 people. Many countries use multiple languages, with China alone having 7 official languages and another 59 recognised languages.[i] Where a country has multiple languages, businesses need to choose the language of correspondence carefully.
Aside from having excellent language use, it is also important to be well versed in the culture – with an understanding of the way in which language is used professionally and colloquially, as well as words that have multiple meanings. Without this knowledge, a direct translation from English to another language could be perceived in a completely different way from its intended meaning; causing offence or misunderstanding.
Where individuals and corporations do not understand one another clearly, there is massive scope for error and when big businesses are involved, the financial fallout can be huge.
Infrastructure and stability
Local infrastructure will have an impact on the amount of risk that is being taken on. For example, where buildings are typically designed to withstand regular earthquakes, properties in that area may be at less risk of damage than buildings subjected to far fewer earthquakes, but with a poorer structure. Questions to consider may include; What are local transport networks like? Would the disruption of one major road or railway lead to massive disruption of activity, or are there other options available for drivers? What is the political stability of the country like? How does this impact on business and trade (and how might it in the future?) There are so many contingencies to consider when expanding into other countries. Having Risk Assessors and advisors who can think about all aspects of a situation will be vital to the success of the expansion.
Natural disasters are a huge consideration when talking on risks in other parts of the world. While the UK has relatively few natural disasters to contend with, other nations see significant loss through extreme weather, earthquakes and volcanos. The United Nations Office for Disaster Risk Reduction produced statistics for the years 2005 – 2014, finding that during that ten-year period $1.4 trillion of damage was sustained worldwide through natural disasters. China experienced the most natural disasters, with 286 during that period, while the US, though sustaining fewer disasters, experienced the greatest economic loss, estimated at $443 billion.[ii] These figures show only the financial cost of damage that was caused; where insurance companies are offering personal injury cover or employer liability the repercussions of natural disasters become even more complicated.
Law and procedure
Local laws complicate issues when underwriting risks abroad. Different countries will have different laws on what insurance cover is needed and what level of cover. These regulations may be updated regularly, meaning that for companies working throughout a number of countries, the legal situation can be extremely complicated. It is important to have qualified, expert legal advice covering each country involved.
In addition, procedure can cause some complications. For example, in China, when an accident occurs, the settlement is often decided upon immediately – which would require significantly different insurance responses than that expected in the UK.[iii]
How can insurance companies and brokers help companies to mitigate their risks?
Companies will need to hire country specific experts to ensure that they have considered all aspects of a country’s risks, as well as the best ways that those risks can be mitigated. With laws changing all the time, it will be important that companies have regular updates from their experts.
Zurich has set up a “risk room,” highlighting the different risks associated with 171 countries across the world and how these risks might affect businesses. The award-winning tool tracks changes to risks on a monthly basis, making it an excellent platform from which companies can begin their risk assessments.[iv]
When it comes to underwriting their client’s risk, insurance companies will be eager to employ experienced underwriters to liaise with country specific experts and fully assess the risks that are likely to be encountered and the financial implications of any risk. Specialist recruitment agencies, such as Aston Charles are skilled in finding Underwriters with training and experience in niche areas in order to match ideal candidates with specific jobs.
Insurers and businesses will be keen to work together to ensure that risks are minimised, contingency plans are ready and suitable levels of insurance cover is in place with policies that accommodate all aspects of international risk.
[i] Nick Evans. 2012. smallbusiness.co.uk. [ONLINE] Available at: http://smallbusiness.co.uk/language-barriers-and-international-trade-2110138/. [Accessed 9 October 2017].
[ii] The United Nations Office For Disaster Risk Reduction. 2015. Economic and Human Impacts of Disasters 2005-2014. [ONLINE] Available at: https://www.flickr.com/photos/isdr/16111599814/. [Accessed 6 October 2017].
[iii] Insurance & Technology. 2010. China Market Opportunities Obscured by Language Barrier | Insurance & Technology. [ONLINE] Available at: http://www.insurancetech.com/china-market-opportunities-obscured-by-language-barrier/d/d-id/1311849. [Accessed 09 October 2017].
[iv] Zurich Insurance Group. 2017. Zurich Risk Room | Tools for business | Zurich Insurance. [ONLINE] Available at: https://www.zurich.com/en/products-and-services/tools-for-business/zurich-risk-room. [Accessed 09 October 2017].