FoS not always the answer for EU programs

FoS not always the answer for EU programs

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FoS not always the answer for EU programs

Global insurance programs are designed to, hopefully, simplify complex cross-border arrangements, and certainly where regulators can co-operate and regulations are aligned, it makes the process much simpler.

Undoubtedly, the EU’s Freedom of Services (FoS) means that a global program covering the EU can be simplified enormously through its use, with one admitted policy, thus reducing costs and administration. But while within the EU there is the ability to utilise FoS to create pan-European coverage, there are often incidences where this may not be the most appropriate approach and where a local policy may be required or preferred.  For example, where certification or evidence of cover is required in local language; for liability coverages where local law is very different to the law in which the master policy is issued such as Germany and France; and where local directors insist on a local D&O policy.

Even though FoS is clearly a good option in some scenarios, there are also numerous situations where a local policy is likely to be the more appropriate approach.  Consider the following:

  • Without a local policy, the local insured would probably not receive a policy wording in their local language and nor would the wording be tailored to the local market, meaning that distinctive and sometimes important local coverages could be omitted.
  • The absence of a local policy issued by a locally registered insurer will often mean that the insured cannot benefit from the protection provided by local insurance pools for exposures such as natural catastrophe and terrorism.
  • The more remote, arm’s-length nature of FoS cover generally means that there is no local insurer representation in the event of a claim, which can clearly cause issues from a loss-adjusting perspective.
  • In countries where there are more complex local tax, levy and fee structures, a local policy would make it easier to comply with the local tax legislation and, in some cases, also accounting practices. Law and jurisdiction also need to be agreed between policyholder and insurer, as well as the language and currency for all FoS locations, which may lead to challenges depending on the country involved.
  • Servicing the client locally based on a local policy comes with benefits in the areas of market knowledge and local coverage specifics, as well as claims handling being locally available.

So, while FoS cover might seem like a simpler and cheaper option for the customer, insurer and broker at the outset, it can be a false economy depending on the nature of the risk and what happens from a claims point of view.

In summary

FoS policies may appear to be a complete solution for a multinational’s European risks. A multinational could obtain a single policy covering all of its European risks, and the policy would be deemed admitted throughout Europe by virtue of the insurer’s FOS rights.

However, the use of a one-size-fits-all FoS policy raises its own set of concerns. While a FoS policy is indeed considered admitted throughout the EEA, local requirements in each covered country must still be addressed. For example, the FoS policy may need to incorporate specific provisions unique to each covered country and/or may need to be translated into various languages. Also, as with local policies, premium taxes will still need to be calculated and remitted by the carrier in each covered country. Claim handling may need to be localised as well.

So while FoS policies distinguish European-based risk programs from those produced elsewhere and may have some appeal, they must be carefully considered and smartly executed.

For any assistance contact HDL

At HDL, our ability to design international insurance programs and service the needs of our multinational clients is virtually boundless. We have access to licensed insurers worldwide, with local representation in over 140 countries.

Contact HDL for more information.

The information provided in this article is of a general nature only and has been prepared without taking into account your individual objectives, financial situation or needs. If you require advice that is tailored to your specific business or individual circumstances, please contact HDL.

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