Export of goods and services is one of America's most rapidly growing businesses. According to statistics recently released by the U.S. Department of Commerce, exports of merchandise from the United States have been growing at a rate of 6.7% annually. Export of services for the past three years has been expanding nearly twice as fast, at 12.6% annually. These trends are being fueled by the increased purchasing capability of individuals and businesses overseas, as their currencies have appreciated against the dollar. Mainstream American businesses of all sizes are adapting to the global marketplace that is emerging as the provisions of GATT take effect and as information technology shrinks the barriers of time and distance.
Large, multinational companies are accounting for a decreasing share of exports. McGraw Hill New York estimates that, of $550 billion of exports this year, more than half were sales by American "middle market" companies, up from 45% just five years ago. Such companies often do not have the same breadth of insurance coverage or in-house specialized risk management resources that characterize multinational companies. Yet they face a rapidly-changing risk environment when they seek to develop successful export business.
According to Bill Skapof, Vice President of Global Risk Management, a division of CIGNA International, "there's a major shift in the world toward strict liability. More and more overseas manufacturers are looking to U.S. 'deep pockets.' As local laws begin to embrace such legal concepts as strict liability, suits are increasing being brought in courts outside the United States, where a typical U.S.-purchased Comprehensive General Liability policy doesn't provide defense coverage. While the large court awards that occur in the U.S. are unusual overseas, suits of $2-5 million outside the U.S. are no longer uncommon. For a mid-size manufacturer, an uninsured loss of $1 or $2 million can mean the end of the business."
In Europe, various EEC directives have imposed the standards of strict liability for several years. Now, in the EEC countries, the increasing strength of consumerism is evidenced by the popularity of the "CE" mark applied to products meeting quality-testing standards, much like the "UL" label in the U.S. As of January 1, 1995, the "CE" mark must be affixed to all machinery exported to EC Countries. Japan's Products Liability Law #85, enacted in June, 1994, is now applying to all products delivered since July 1, 1995. A similar law has been passed in China, and implementation is pending.
American exports increasingly consist of specialized services, covering a diverse range that includes communications technology, computer software, pollution control and cleanup, agricultural packaging, energy development, design of transportation systems, banking, and insurance. Export of services usually results in more frequent overseas travel by key personnel, often to destinations that are relatively inaccessible or underdeveloped.
In case one of your key employees becomes ill or is injured in a place that lacks the needed medical facilities or skills, it now is possible for them to obtain help through a program of "Medical Assistance Services." Typically, the service provides 24-hour access to personnel that speak your employee's native language. The service directs your employee to the nearest appropriate medical facility, gets them admitted, and may advance payment on your employee's behalf. If local treatment facilities are inadequate, the service pays to evacuate the employee and medical personnel to the nearest appropriate site.
International insurers are developing packages of products and services that respond to the broad range of challenges faced by middle-market exporters. For example, CIGNA's International Advantage policy combines Medical Assistance Services with Employers Liability, Foreign Voluntary Workers' Compensation, Executive Assistance, General and Products Liability, and Property coverages in one policy. "Executive Assistance" provides help in case a key employee is detained in a foreign location for legal or political reasons, including kidnap situations. According to Bill Skapof, policy premiums mostly range from $5,000 to $20,000, and volume is growing at 30% annually. AIG's World Risk package offers similar coverages and services, including crime and political risk.
Financial risks are another dimension faced by middle-market exporters. Doug Smith, West Coast Regional Manager of AIU North America, indicates that the international carriers are making greater use of financial products, and are integrating them with traditional insurance products. AIG's trade credit coverage insures world trade receivables, and third-party money management services are being offered where allowed by local regulation.
These packages of services and insurance coverages are usually offered on a "non-admitted" basis, as a single worldwide contract. When an exporter's success in a major market leads to a greater local presence by establishing a subsidiary or investing in physical plant, then global insurance contracts are supplemented with locally-admitted "monoline" policies. The purpose is to allow for payment of loss to the local subsidiary in full accordance with local laws and customs.
Allen Monroe, president of Financial Risk Consultants in Larkspur, California, can be reached by e-mail at firstname.lastname@example.org or (415) 927-8824.
Copyright ( 1995 RISK & INSURANCE. 747 Dresher Road, P.O. Box 980, Horsham, PA 19044-0980. Reproduced with permission of David Shadovitz, Editorial Director (215) 784-0910. Portions of the content herein first appeared in RISK & INSURANCE, in November, 1995.