Graham Denny, partner at EC3 Legal takes a positive look at insurance as a business enabler
It was not long ago that many viewed insurance products as a grudge purchase. However, increasingly insurance products are being seen as business enablers, allowing companies to de-risk transactions and projects allowing them to pursue more ambitious, diverse growth strategies by entering into new sectors or territories. Whilst there is a growing interest for such products, when dealing with multiple jurisdictions, there are potential pitfalls to be aware of:
- The insurance policy needs to provide the cover required and so risk managers need to ensure the product is the right one for the risk. Care needs to be taken on reviewing the policy to ensure all the correct parties are named and the exclusions do not reduce the cover beyond that required.
- Often where multiple jurisdictions are concerned the risk manager’s focus must be not just on the insurance but on the broader insurance and reinsurance programme when seeking to manage the risks faced, including the use of captives where appropriate.
- The governing law of an insurance policy can have a significant bearing on the breadth of cover. Local law and jurisdictions can dilute well known safeguards under English law so the effect of local insurance law on policy coverage is an important consideration.
- Insurance is purchased to respond to claims. When insuring complex risks consideration should be given to claims protocols so that, should a claim arise, each party involved knows their respective roles.
- It is not unusual for the same broker to be used for placing both the local insurance and the reinsurance on projects abroad. There is an inherent risk of conflict for the broker in doing so, particularly should coverage issues arise. Risk managers need to be alive to this.
- It is important to check and, if possible, to secure identical dispute resolution clauses in the insurance and reinsurance. This raises the possibility of agreement for any disputes to be resolved in one forum, limiting the chances of inconsistent findings by different tribunals.
The focus of a risk manager is as far as possible to obtain and achieve contract certainty in their insurance and reinsurance programmes. With the increasing interest and use of insurance and reinsurance products to drive business strategy, care needs to be taken when working across multiple jurisdictions to ensure the insurance and reinsurance programme provides the cover required.