The Risky Old U.S.A.

The Risky Old U.S.A. | Risk & Insurance | A RIMS panel, men of international experience, teach us the dangers of this country. U.S.-based risk managers, please do not be offended by what we say.

By DAN REYNOLDS, senior editor of Risk & Insurance®

But you live in a litigious society and are beset by a myriad of geography-specific physical risks.

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What makes matters worse is that you have 50 states, each with their own insurance commissioner. You also have one state, Louisiana, which litigates according to the Napoleonic code, which has its roots in France, and 49 other states that judge cases based on common law, which has its roots in England.

If you are a risk manager for a foreign-based company who is considering the risks you must face in establishing U.S.-based operations, we ask you to please read this, for we have much to say to you. Rather, Jorge Luzzi, the Milan-based risk manager for the Italian tire maker Pirelli SpA and his friends at a panel on U.S.-based subsidiary risk at the Risk and Insurance Management Society's annual conference in Orlando in April had much to say to you.

Luzzi, an Argentinean by birth, says the highest hurdle for risk managers for foreign companies doing business in the U.S. is its legal system. Because the U.S. is so litigious, right off the bat, the cost of certain coverages in the U.S. is double what it will be in Europe or elsewhere.

Luzzi cautions that risk managers not familiar with the U.S. legal system might consider discretion the better part of valor when it comes to defending a claim. He cites the example of a lawsuit brought by a U.S. bicycle rider injured in a crash who claimed the cause was a malfunctioning Pirelli bicycle tire.

The amount sought was $15,000. The cost of the legal defense was $25,000. What to do? Luzzi pursued the latter option. Far better to pay the money to dispute the claim, he reasoned, than risk his Italian-based company's reputation by admitting guilt or liability in a U.S. courtroom.

Language, how one culture perceives another, and how languages vary not just from country to country, in, say Latin America, but from region to region in the U.S., were another topic of concentration on the RIMS panel. Stavros Costarangos, like the rest of the panel boasted a strong international resume and for his day job serves as an executive vice president with Padeco Seguros, a Panamanian-based employee benefits company.

According to Costarangos, words that we take for granted in the insurance lexicon in the U.S., have no equivalent in other countries. Take the word "captive", which we who study insurance know well. In Latin America, the word does not exist.

Underwriting, a common and useful enough phrase wouldn't you think? Can't find it in Brazil, can't find it in Panama. D&O? There is no such thing, it's just known as liability in much of Latin America.

June 1, 2009

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