Time to rethink your insurance plan

What are the financial risks attached to global insurance programmes for fleet owners with cross-border operations? WILLIAM GEORGE finds out.

There are several financial risks that businesses with cross-border operations need to take into account. It is, therefore, ideal to have insurance that best complements the nature of the business.

Africa remains one of the fastest-growing regions in the world and many South African organisations are focusing their growth strategies beyond the border, despite the unpredictable commodity market. This opportunity may be short-lived, however, due to the regulations and tax policies that are in place in other countries.

Neil Beaumont, business development and global accounts manager at Chubb Insurance South Africa, says: “Structuring a global insurance programme requires an in-depth understanding of the transactional elements of cross-border insurance, particularly as this relates to local tax and insurance regulatory requirements.

“The reality is that, from an insurance regulatory perspective, the world is not as interconnected and homogenised as we might wish it to be. As a result, insurance should be structured to take into account the relevant regulatory regime of each jurisdiction.”

Beaumont warns that global insurance programmes may be subject to regulatory and tax scrutiny in certain jurisdictions. This has the potential to lead to unexpected reputational and financial effects at the claims stage.

Yannick Dinanga, commercial sales consultant at MiWay Business Insurance, says that truck insurance from MiWay would cover cross-border operations. This includes countries such as Botswana, Lesotho, Mozambique, Nambia, Swaziland and Zambia. However, this cover will not apply should the operator drive out of these borders.

Dinanga explains: “The insurance will fully cover the trucks and goods-in-transit of countries into which we have access. For example, when a truck gets stuck in Botswana, the insurance will cover the cost of repatriating the vehicle from Botswana back to into South Africa.”

He adds: “There is no fixed amount attributed to truck insurance. We look at the truck and the type of business, and the cost of the cover is then based on the associated risks.”

There is an extensive documentation process involved in cross-border operations. The general documents required are the vehicle registration and a letter from the bank, if the vehicle is financed.

Neighbouring countries may require operators to have international insurance in order to accommodate their own regulations and policies. Regulations and laws in those countries may hold operators financially liable should accidents, theft or damage occur.

The one-size-fits-all approach simply does not apply to insurance for a business that has cross-border operations. Thelma Masamba, senior consultant and business development at Alexander Forbes, explains that the regulations and costs in other regions differ to those in southern Africa. “In most neighbouring countries, truck owners are required to purchase a third-party liability cover at the border. Failure to purchase this will result in violation of the laws of that country and will also leave a gap in their cover.”

She adds: “A comprehensive insurance will cover the vehicle as well as good-in-transit within the region.”

Beaumont explains that risk managers and insurance buyers also need to consider that global insurance programmes have evolved beyond the standard compliance question of whether insurance is “admitted or non-admitted” in a given territory.

He says: “Risk managers and insurance buyers need to be thinking about their multinational risks and where they can best access available, dynamic capacity, not only for core lines such as property, general liability, marine or directors and officers, but increasingly also specialty lines such as business travel, group personal accident, cyber threats, environmental liability and stand-alone terrorism protection.

“When considering a global insurance programme, it is crucial to align the capabilities of the insurer and local broker, relative to the global exposure of the insured party. It is of great importance to investigate whether the capabilities of the insurer and broker will meet expectations at acceptable service standards, and that the people who will be servicing the multinational insurance programme are accessible.”

Beaumont adds: “Insurance brokers, risk managers and all other buyers of global insurance should work with an insurer and consider whether they also need assistance from an independent financial or tax advisor.”

Because there is no global standard for insurance regulation, compliance analysis of local regulations governing insurance remains critical. Companies and operators may need to rethink their business insurance strategies, as the underlying risks associated with operating in foreign regions can result in unpaid claims.