Countries around the world mandate constantly changing laws, regulations, and rules regarding insurance requirements for multinationals operating within their respective jurisdictions. Structuring multinational insurance programs to properly respond to losses in all applicable countries can present challenges. Clients should understand the complexities of an integrated global insurance program to help assure comprehensive jurisdictional coverage compliance. Multinational companies with local policies should consider a Controlled Master Program (CMP) with a master policy that incorporates Difference in Conditions (DIC) and Difference in Limits (DIL) clauses to help avoid potential coverage gaps for a sound global insurance program.
A multinational’s CMP master policy is generally underwritten and issued in the parent company’s headquartered country, with policies utilized as desired or required in local jurisdictions around the globe. When placing local policies, it is common to encounter filing and capital requirements, as well as coverage terms, conditions, and limits that differ widely from country to country. In addition, regulatory and legal provisos dictate how and where claims payments can be made. DIC/DIL clauses embedded in a master policy can greatly assist in providing consistency and comprehensive protection.
DIC/DIL clauses are integral to a sound risk management insurance program. Nuances surrounding jurisdictional implications, while complex, can be navigated more effectively when DIC/DIL clauses are applied. For U.S.-based multinationals, a U.S. domiciled master policy must be in place for coverage to interact with foreign in-country policies. A DIC clause included on the master policy generally provides that if a claim occurs against a local policy but the terms of that local policy do not respond, the master policy’s broader terms will apply to the loss. A DIL clause generally provides that when the local policy limits are exhausted, the master policy’s higher limits can be drawn upon for claim resolution.
Chubb data reveal that DIC/DIL claims are frequently triggered across casualty, property, and specialty lines of business. According to Chubb claims data analysis from 2018-2019, DIC/DIL clauses were utilized in 30% of product liability, nearly 20% of general liability and commercial automobile liability claims, and 18% of financial lines claims, respectively.
As an example, consider how a general liability claim of $8 million occurring at a textile manufacturing operation in India can be resolved against a U.S.-based multinational with a primary $15 million U.S.-issued master policy and $5 million local policy issued in India. The driving factor for satisfactory claim resolution would be determining how and where the payment can be made and to whom. Claim investigation under the local policy would typically be handed in the local jurisdiction within India. Following exhaustion of the local policy limit or lack of coverage under the local policy, the U.S. policy DIC/DIL clauses can be utilized to determine coverage, if any, under the U.S. master policy, thereby leveraging the master policy terms, conditions, and/or limits. In this scenario, assuming coverage is available under both policies, the local issued India policy would respond first, with the residual claim amount drawn from the master policy’s aggregate limit.
DIC/DIL clauses represent only one component of a compliant multinational program, another consideration is Financial Interest (FI) coverage. FI coverage generally allows for payment under the master policy for loss taking place in a foreign jurisdiction. More specifically, FI cover applies to foreign losses where the master policy parent company has a specified financial interest in a foreign loss and such loss occurred in a jurisdiction that does not permit non-admitted insurance. Payment for such losses would generally be made under the master policy to the master policy first named insured in the jurisdiction where the master policy was issued. FI cover can be useful for foreign loss occurring in jurisdictions, such as Brazil, Russia or India that do not permit non-admitted insurance.
Overall, a U.S.-based multinational’s global insurance program should complement its corporate capital structure. Insurance is a financial tool that is an extension of its corporate risk profile to build sound risk management practices that effectively manage risk exposures throughout the global corporate footprint.
To learn more about DIC/DIL clauses and building a compliant multinational insurance program, read our advisory, Navigating the Nuances of DIC/DIL Clauses.
Tom Harris is Executive Vice President, Chubb Global Services.
Patric Jones is Senior Managing Counsel, Chubb Global Multinational.
The opinions and positions expressed are the authors’ own and not those of Chubb. The information and/ or data provided herein is for informational purposes only and is not a substitute for professional advice. Insurance coverage is subject to the language of the policies as issued.