As businesses expand globally, the need for robust Directors & Officers (D&O) liability insurance has become increasingly critical. While multinational companies often secure global D&O coverage, such policies may not be sufficient in jurisdictions where local regulations mandate coverage through a locally licensed insurer.
Local admitted D&O policies provide significant benefits, including compliance with local laws, tax efficiency, and ensuring coverage effectiveness. However, they also come with potential downsides that businesses must consider.
The Benefits of Local Admitted D&O Policies
1. Compliance with Local Regulations
Many countries require that insurance policies covering risks within their jurisdiction be issued by locally licensed insurers. A global D&O policy without a local admitted component may not be recognized in some jurisdictions, leading to potential regulatory non-compliance and unenforceability of claims.
2. Avoidance of Unnecessary Tax Burdens
Without a local admitted policy, insured parties may face tax liabilities, such as non-admitted insurance taxes or penalties, which could increase the cost of coverage and lead to regulatory scrutiny. Local policies ensure that companies comply with tax laws, avoiding unexpected financial burdens.
3. Effective Claims Handling and Defense Support
In jurisdictions that do not permit payment of claims under non-admitted policies, insurers cannot make payments locally. In such cases, directors and officers may be left to personally fund their defense costs, which can be substantial given the often prolonged nature of D&O claims. A local admitted policy ensures direct access to claims payments within the jurisdiction, protecting individuals from personal financial exposure.
4. Addressing Regulatory Issues Such as Anti-Money Laundering (AML)
Many countries have strict anti-money laundering (AML) regulations that prevent foreign insurers from paying claims into their jurisdiction unless properly registered. A local admitted policy ensures that payments are compliant with local AML regulations, reducing legal and financial risks.
5. Familiarity with Local Legal and Regulatory Environment
Local insurers have an in-depth understanding of their country’s regulatory framework and legal environment. This ensures more effective claims handling, as local insurers can navigate local court systems and regulatory requirements better than foreign insurers operating from afar.
6. Standardized Coverage for Local Jurisdictions
Local admitted policies typically reflect the standard D&O coverage available within a jurisdiction, ensuring that directors and officers are insured in line with local market practices. This consistency can be crucial for companies operating across multiple jurisdictions, as it aligns insurance provisions with regional expectations.
7. Considerations for Companies
Many companies opt for local admitted D&O coverage to enhance protection for their directors and officers while mitigating potential regulatory and financial risks. Businesses with a significant presence in foreign jurisdictions may find it beneficial to maintain local admitted policies to ensure smooth claims handling, compliance, and financial security for their leadership teams.
The Downsides of Local Admitted D&O Policies
1. Additional Premium Costs
Purchasing local admitted policies in multiple jurisdictions often results in additional premiums, increasing the overall cost of D&O insurance. Businesses must balance the benefits of local coverage against the financial implications.
2. Limited Availability of Insurers with Global Capabilities
Not all insurers have the ability to provide both global and local admitted D&O policies. Companies may face challenges in finding insurers that can offer coordinated coverage across multiple jurisdictions while maintaining local compliance.
3. Potential Erosion of Master D&O Policy Limits
When local admitted policies share limits with the master D&O policy, claims paid under local policies could reduce the overall coverage available at the global level. This may leave the company and its executives with insufficient protection if multiple claims arise across different jurisdictions. Companies should carefully structure their insurance programs to mitigate this risk and ensure adequate coverage remains available.
Consideration of Worldwide Territory Coverage
Most D&O policies offer worldwide territory coverage, allowing companies to protect their directors and officers across multiple regions. However, despite this broad coverage, certain jurisdictions still require local admitted policies to allow claims to be paid within the country. This highlights the importance of understanding both the global reach of a D&O policy and the need for local admitted components to ensure full protection.
Conclusion
While local admitted D&O policies introduce added costs and logistical complexities, they provide essential protections for directors and officers operating in foreign jurisdictions. Ensuring compliance with local regulations, enabling effective claims payments, and mitigating legal risks make local admitted policies a necessary consideration for multinational corporations. Businesses must evaluate their risk exposure and seek appropriate coverage to safeguard their executives and maintain regulatory compliance across their global operations.
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Kyle Albert
Senior Vice President, International Insurance
I’m Kyle Albert, Senior Vice President of International Insurance at Axis Insurance. With over 15 years of experience, and the past decade dedicated to working with multinational clients, I oversee the International Business team at Axis, focusing on expanding our international presence and capabilities. My expertise lies in developing compliant and efficient insurance programs that address the unique risks of operating globally, providing clients with the assurance they need to navigate complex international markets.
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