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By JOEL BERG, a freelance journalist and professor.

What was supposed to be a soothing dip nearly became an insurance nightmare.

The executive's company had taken out a South African insurance policy, but it only covered fires. Fortunately, the company had bought an international policy as a backstop, and it extended to water damage, Fondrick said.

Not every international claim has a happy ending. Difficulties in communicating and gathering information--as well as differences in culture, regulation and policy language--can boost the cost and delay resolution of foreign claims, according to consultants, brokers and insurance executives.

Sick or injured employees pose a special challenge, especially if they are traveling in rural areas, Fondrick said. "The rule of thumb is get them to a major city as quickly as possible, stabilized and then back into the United States as quickly as possible."

In the United States, companies rely on networks of providers who treat work-related injuries under contracts that control the cost of medical claims.

"Overseas, you pay whatever the bill is," Fondrick said. "There is no fee schedule for Russia or Hong Kong. So if you've got an employee who's been injured and they're flown to Hong Kong for treatment, that bill alone could be $50,000."

The risks are growing as more U.S. companies establish operations overseas, strike partnerships with foreign companies or ship their American-made products to consumers ordering online from other countries.

"It's really common practice now for us to talk to our clients and ask them about what is their international exposure," said Lance Hairgrove, an account manager with HUB International.

Typically, companies have counted on their insurers to tackle issues associated with international risk, said David Patterson, president of ESIS Inc., the claims management subsidiary of ACE USA in Philadelphia.

But as exposure increases, U.S. companies are asking whether they can save money by adopting the risk management tactics overseas that they've applied in the United States, Patterson said.

"Transfer of risk may or may not be the best possible solution," Patterson said. "It could be that retaining some of that risk may be a better solution, as it is in many domestic situations."

Large, multinational companies generally have a solid grasp on their overseas exposure and are aggressively managing it, said Richard Pankhurst, a director in the insurance advisory practice of consulting firm PricewaterhouseCoopers.

"The real challenge comes for companies that are not quite so internationally oriented, small or medium operations with maybe a business partnership in another country," Pankhurst said. "How are those companies dealing with it?"

The challenges begin as soon as police or other officials arrive on the scene of an accident. In the United States, companies often can dispute rulings by official investigators, Pankhurst said. Overseas, companies may find their arguments hit a brick wall.

The local authorities determine who is liable and thus the outcome of the claim, a situation potentially exacerbated by corruption and favoritism, Pankhurst said. "You may end up paying the money regardless of what you think the right answer is."

Depending on the situation, company executives also could find themselves criminally liable. In the 1990s and early 2000s, criminal charges dogged British members of a Formula One racing team whose driver died in a crash during a race in Italy.

"Some of this law is uncharted," Pankhurst said.

Even in friendly situations, risk managers can have trouble gathering accurate information about a claim. They may be thousands of miles away and relying on others to feed them information--or translate it from another language.

"They don't know what's going on, and it's hard for them to assess what's being spent, how many hours are being spent, who's actually working on the claim," said Kirsten Early, an assistant vice president and global claims practice leader at ESIS.

By the time they find out, the damage may already have been done, she said.

Even when risk managers have reliable people on the ground, they can encounter bumps in the relationship, Early said. In other countries, professionals may not have the same sense of urgency that drives U.S. executives to take their smartphones to the beach.

"It's not because they don't care about the claim or they don't want to do a good job for you," Early said. It may just be custom for people to drop out of touch during the three weeks they are on vacation.

In response, U.S. risk managers should be flexible, Early said. They'll have to identify other people who can handle the matter temporarily and recognize it may take some time to bring that person up to speed.

Once a foreign claim is in process, regular communication is essential to avoid surprises. But scheduling conference calls and overcoming language barriers can be tricky, said Ken Giambagno, a managing director and global practice leader in the forensic accounting and claims practice of New York-based Marsh Risk Consulting.

Parties speaking different languages may come away with competing understandings of what was said, Giambagno said. "If you don't recognize that there will be those additional challenges, it will be much more difficult to meet the timelines and the milestones that you establish in a loss-measurement process."

Hitting those milestones, such as distributing partial payments, still might take longer, he said. "That's why it's really important to recognize those issues are going to exist."

Complicating matters, a foreign claim may end up embroiling people in more than two countries.

Business interruption claims, for instance, can quickly cross boundaries as international supply chains are disrupted. "That's probably the biggest individual item," said Neil Harrison, group managing director of risk control, claims and engineering for Aon Global Risk Consulting in Chicago.

"The U.S. company has a claim in Singapore, that's interesting," Harrison said. "But the business interruption piece could involve you in trying to assess the impact on plants in Europe, in Africa, or it may affect supplier relationships in other parts of Asia."

Sorting through layers of coverage is another potential landmine for U.S. risk managers.

Companies operating abroad typically have policies purchased locally backed by U.S. policies that extend overseas. In some cases, the local coverage is required by law, said Kathleen S. Ellis, a senior vice president and global manager with Chubb Multinational Solutions, a unit of Chubb Group of Insurance Companies in Warren, N.J.

Risk managers need to make sure there are no gaps, especially if local managers are free to buy their own coverage, Ellis said.

In one case, Ellis said, a local carrier took two years to determine whether a work-related death was covered. The claim was ultimately denied but not before the company had expended substantial legal fees, as well as staff and management time.

Local plant managers had purchased the policy. It was cheaper, but separate from the company's existing global insurance program, which did not cover the claim, Ellis said.

Requirements to purchase insurance locally are only the tip of a legal iceberg. A variety of laws and regulations can affect the management of claims and their aftermath.

When it comes to handling electronic data, for example, rules in the European Union are generally stricter than in the United States, said Michael Reeves, executive vice president of global markets for Atlanta-based Crawford & Co.

"We have done work with U.S. multinationals to make sure their claims data doesn't transgress EU legislation, and that can be as simple as the way information is stored on computers, where the server is hosted, to make sure that you're not giving sensitive, confidential information out as part of the global program," Reeves said.

Companies also may need to follow varying rules for banking and treasury management, Reeves said. Depending on the country, mismanaged payments can result in unexpected taxes or penalties.

Whatever the differences between countries, there is generally one rule of thumb risk managers can count on: It's too late to sort through a country's rules and customs after a claim has occurred.

"If you don't have an understanding of the laws and the procedure and the process, then you're going to get burned at some point in time," said Marc Lanzkowsky, founder and principal of New York-based claims consultancy Lanzko Consulting Inc. and editor of The Claims SPOT. "It's inevitable."

September 1, 2011

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