It's a Small World: Doing Business Abroad

The international insurance market offers a variety of benefits to independent agents and brokers. It provides a perfect tool for solidifying your Commercial Lines accounts and insulating them from inroads being made by alphabet house brokers. International insurance operations also offer an entree to new product lines and markets that will expand your facilities abroad. For example, U.S. agents can introduce their expertise in such lines as Auto, Medical, Surety, and Workers' Compensation to third-world countries that are privatizing these coverages. Canadian brokers can expand their expertise in out-of-country private Medical insurance and, potentially, Workers' Compensation.

Doing business abroad can introduce agents and brokers to new international markets, both primary (with such carriers as AGF, Allianz, Generali, and Winterthur), and reinsurance/variable insurance programs (financial reinsurance, stop-loss reinsurance, catastrophe reinsurance, etc.). The international market encompasses the national accounts division of major companies, offering creativity, capacity, and flexibility, enabling the agent or broker to approach accounts on a broad basis. Examples include Aetna, AIG, Chubb, Great American, The Hartford, and Reliance National.

Agents and brokers can access the captive market either by establishing a captive for a corporate client or renting a captive to facilitate international exposures, self-insured retentions, and a potential profit center. The international market has captive facilities in such locations as Bermuda, Barbados, Ireland, Guernsey (the Channel Islands), and Luxembourg.

BUILDING EXPERTISE AND INTERNATIONAL KNOWLEDGE

AIG Chairman Hank Greenberg highlighted the success of operating internationally at the 1992 IMMS convention in Scottsdale, AZ. Greenberg has led his very successful organization to develop business in China, the United Kingdom, Europe, South America, Canada, and the United States. For example, AIG has extended its expertise in financial banking to U.S. corporate clients that do business in Asia but find their U.S. bankers unwilling to take the risk of providing financing abroad. Similarly, many IMMS members are large surety brokers with a wealth of expertise and knowledge of their corporate clients. They can extend this expertise internationally by working with companies such as AIG, which understand foreign markets.

FREE TRADE AND THE WORLD INSURANCE MARKET

The U.S.-Canadian Free Trade Agreement has accelerated the growth of Canadian firms into the United States, while mid-sized U.S. firms have expanded into Canada. There has been some growth in Mexico but not to the extent experienced in Canada and the U.S.

Anticipating passage of the Free Trade Agreement, many companies began to position themselves in the Canadian market during the early 1980s. They saw Canada as an entry-point for export into the United States because Canadian laws are less punitive, particularly in the areas of product liability. Many of these firms are insured by the multinational alphabet-house brokers who provide extensions of coverage from a master program established in Europe or Japan.

A few IMMS members have succeeded in meeting some of the essential insurance requirements in such lines as Products Liability through major insurers in Canada, particularly those with operations in the United States. Agents have been able to access U.S. insurers that frequently include Canadian exposures under their U.S. coverage.

European insurers are following their European manufacturing accounts into North America. Canadian brokers and U.S. agents are involved in placing insurance in Canada or the United States on behalf of the European insurers and their clients. Generally, European insurers believe in long-term arrangements and are eager to work with IMMS member agents and brokers to facilitate this business.

The trend is to ensure an international account with a major insurer that will issue policies in the various countries either through its own subsidiary or with a friendly insurer, participating in the risk taking. The underwriting is done centrally from the parent insurer with a broker appointed in the foreign country based on regulatory requirements and facilities under the direction of a master broker.

THIRD WORLD INVESTMENT AND INSURANCE

The insurance industry has traditionally followed the growth of other industries. Investment from the United States and Canada in such developing regions as Eastern Europe, South America, and Asia offers opportunities to insure the manufactured and exported products. A recent example is Canadian investment in manufacturing portable sawmills in Eastern Europe, which are exported to 20 countries, including the United States and Canada. The Canadian client has requested insurance for the sawmills. In this regard, the coverage can be placed in the Canadian, U.K., or U.S. markets.

ALL BROKERS AND CARRIERS AREN'T CREATED EQUAL

Here are a few recommendations for choosing a CORRESPONDING BROKER:

• Look for individual expertise and enthusiasm.
• Set an equitable commission split. In most cases, this should be on a 50-50 basis. However, if the corresponding broker does the majority of the work in placing the account, its split should be higher.
• Negotiate a non-competition agreement.
• Offer the broker one or two accounts to determine the level of interest and service.
• Meet with the corresponding broker at least two to three times per year.
• Set up separate portfolios for the international business within both brokerages to measure the amount of business and related expense.

To select a CARRIER for your international accounts, I would suggest that you:

• Bear in mind that most insurers have problems with international accounts because of policy wording, regulations, accounting, currency, and organizational differences.
• Work primarily with the corresponding broker in the placement of the account. Additionally, a number of excellent international insurers and regional insurers can provide local underwriting, engineering, and support of an international account.
• Qualify the insurer using these criteria:
• Financial stability-a Best's rating of "A" or higher
• Corporate culture
• Multi-state facilities
• Ability to work with a captive
• Ability to "front" if required
• Technical expertise by specific lines of business: Personal Lines, Commercial Lines, Automobile, General Liability, Life and Health, Workers' Compensation, etc. Do not necessarily seek an all-lines insurer, since the carrier might not have the expertise across the board. What's more, the insurer might not want to write in certain regions, such as Florida, Texas, Massachusetts, British Columbia, or Quebec. Selecting the appropriate international insurer will be depend on the region, expertise, capacity, and flexibility in the strategic classes of business for your client (i.e., Auto, Product, Liability, Workers' Compensation, etc.).

OF LAWS AND REGULATORY REQUIREMENTS

Agents and brokers need to be aware of significant technical, legal, and regulatory differences between the U.S. and Canadian market. The U.S. requires more detailed filings for all products sold. Canada requires filings only for Auto insurance. In addition, U.S. agents are required to provide detailed rating and statistical codes for most product lines when seeking quotations from insurers.

The regulatory issues for agents and brokers are generally similar, with carriers and agents/brokers regulated on the state or provincial level. In Canada, provincial regulation dovetails with self-regulation for brokers in the provinces of Quebec, Ontario, and British Columbia. Canadian insurers may be regulated by the government of the province in which they are domiciled. However, most insurers are federally regulated, which allows them to operate nationwide. U.S. insurers are required to obtain licensing in each state in which they do business.

Some Canadian provinces, notably Ontario and Quebec, impose a sales tax on insurance premiums. This means the broker has to collect this tax and remit it to a provincial regulatory department. There are also rigorous requirements on brokers regarding the placement of insurance with non-licensed insurers, which could affect your international accounts.

Some significant differences are found in such product lines as No-Fault Auto insurance, Environmental coverage, and Workers' Compensation. For example, since there isn't subrogation under Workers' Compensation for most industries in Canada, Comprehensive General Liability in the construction field does not have the same exposures as a similar situation in the United States would.

TWO PEOPLES DIVIDED BY A COMMON LANGUAGE

Agents and brokers should also consider cultural differences between the United States and Canada that can affect the conduct of business across the border. For example, the United States tends to be more forms oriented. Accounts are also larger because of the population (approximately 10 times greater than that of Canada) and the inclusion of substantial Workers' Compensation premiums. This results in a U.S. agent receiving a larger commission and anticipating a similar type of revenue in servicing a subsidiary of a Canadian account. Unfortunately, the premium account size tends to be much smaller for Canadian accounts, which leads to limited interest by some U.S. agents.

The Canadian decision-making process tends to be faster. Insurers on international accounts and generally larger accounts will respond within 30 days. The process in the United States is usually much longer (60 to 90 days) because of the detail required and multi-state involvement.

REVERSE FLOW BUSINESS: ON THE RISE

"Reverse flow" business-involving domestic subsidiaries of foreign parents-is playing an increasingly important role in the international insurance market. These accounts will continue to grow as smaller to medium-sized U.S. accounts expand into Canada. Canadians have high technical skills in aviation, automotive, steel, and automation, competing actively on a global basis. For example, all of the Ford Windstars for the North American market are now made in Oakville, ONT. Such economic activities result in Canadian IMMS member brokers working with IMMS member agents in the United States to insure these accounts.

This business can be expanded in Life & Health insurance, pension consulting, and possibly placement of insurance in emerging third-world countries. Such nations as Argentina, Brazil, Chile, China, the Czech Republic, Malaysia, Mexico, Thailand, and Vietnam are on a fast track for economic development. This growth offers a perfect opportunity to expand the IMMS network, with U.S. and Canadian members leading and coordinating the Commercial accounts for business extended or originating in these countries.

MAKING YOUR MOVE

Here's some advice for any agent or broker who'd like to have a piece of the action in the international insurance market:

• Target your existing and prospective clients who either export or provide work for international companies on a joint venture or licensing basis.
• Identify their exposures: Auto, Health, Marine, Products Liability, Workers' Compensation, and so forth.
• Make an arrangement with IMMS correspondent brokers principally in the following states: California, Illinois, Maryland, New York, Texas, Washington, D.C., Washington State.
• Try your first account with the corresponding broker before aligning on a permanent basis.
• Create a system to follow in placing your international accounts.
  
  
• Identify key individuals in the brokerage to handle the international accounts.
• Reach an agreement with the corresponding broker on the priority of international accounts.
• Visit your corresponding broker in advance and frequently thereafter.
• Talk to selected insurers about facilitating international accounts.