DON’T LEAVE HOME WITHOUT IT
Sending executives to work in foreign countries, particularly emerging markets or in “hot spot” areas, can be challenging, sometimes dicey. There are a myriad of insurance solutions that can offset the risks, but experts say companies should also educate themselves on the best practices for risk management in each of those locales—because their executives can’t always run to the nearest police station in places where law enforcement may not be all that effectual.
And then there’s also just responding in the most feasible way possible at the moment. Take this case:
For the first time, a client of corporate relocation firm Cartus Corp. was deploying its executives into remote locations in Africa, India and China, where there is much less infrastructure, including comfortable housing they would find in the Western world or schools they would feel are safe for their children, says Cindy Madden, director of Consulting Solutions at the Danbury, Connecticut-based firm.
The companies first moved their executives to get “a lay of the land,” but when the executives got to the locations, they were very upset because their household goods either took a long time to arrive, didn’t show up at all or were stolen at the port.
“In these situations, sometimes it’s just better for the company to pay outright for new household goods rather than waiting for any insurance claim to be paid,” Madden says.
One of the most critical insurance products that companies deploying executives in foreign countries must have is an admitted directors’ and officers’ policy for each market, says Lee Lindsay, a managing director with Aon’s Financial Services Group in Denver. Even if a U.S. company has a global directors and officers liability (D&O) policy written in the U.S., executives working in such countries need to be covered by a separate D&O policy written by a local carrier that was admitted to place insurance in that country.
This is critically important when it comes to the Side A component of D&O insurance, which is for non-indemnifiable loss, Lindsay says. This is personal cover for directors, officers and other senior management in instances when a company is not permitted to indemnify them.
“Over half of the world’s countries don’t have laws on company indemnification, so companies deploying executives in foreign countries don’t know whether a particular country is going to allow corporate indemnification of an executive when a claim comes in against that individual for committing a wrongful act,” she says. “This is when admitted D&O insurance for personal cover is important.”
The only way a company itself can indemnify that individual and pay defense costs is if that person is adjudicated innocent or not liable, Lindsay says. With a Side B claim, however, if a foreign company allows a company to pay for defense costs of an individual even if they are not adjudicated innocent or not liable, then the insurance company can pay the parent company’s claim in the U.S., under the parent company’s U.S.-based global D&O policy.
“This issue became a bigger concern after the 2008 global financial crisis, when there was a surge in claims against U.S. executives working in foreign subsidiaries of U.S. parent companies,” she says. “Before the crisis, carriers were selling 15 locally admitted D&O policies a year, but now [they] are selling over 3,000 policies a year.”
Separate workers’ compensation policies may also be needed, says Terry Campbell, a managing director of the global risk management practice at Arthur J. Gallagher & Co. in Los Angeles.
For short-term assignments of less than a year, workers’ comp would be covered by the foreign voluntary provision of a company’s domestic workers’ compensation policy, Campbell says. But for longer assignments, employers should make sure they get covered by the appropriate workers’ comp scheme in the country of employment.
For companies that send employees to hot spots such as Iraq and Iran to conduct government-related work, they should get an extension on their workers’ comp policy for Defense Base Act coverage, he says. This coverage is for people who work on a government contract on a military base or on foreign soil, including consultants. Should they get injured, they can get significantly higher workers’ comp benefits since they are working on behalf of the military or other federal government agencies, like the State Department, so employers should make sure they get that specific coverage endorsed under their domestic workers’ compensation policy.
“We also recommend a business travel accident policy for employees, including their families that may accompany them, which gives them access to medical care provided at local hospitals and doctors that are available,” says Lance Becker, another AJG managing director in New York City. “We would recommend that these policies extend to provide medevac evacuation to get the executive out of the country to get access to the U.S. or closest location for specific medical care.”
Companies deploying executives to hot spot areas should definitely consider kidnap and ransom policies (K&R), Becker says. When employers buy such policies, they are buying more into networks and solutions provided by firms specifically set up for crisis management when situations happen—“and they can happen fast.”
“This is all about good risk management,” Campbell advises. “By procuring a policy, they have special ops and resource people who know what’s going on in that country, particularly in the hot spots, and it’s really inexpensive insurance. But employers should never admit that they have K&R coverage, because that would just attract kidnappers.”
With a lot of these programs for hot spot areas, employers are going to need the assistance of the military—“they are the network and the go-between,” Becker says. Employers should at least advise the military about what they are doing in a particular country, as the military is the communication channel. “But the best risk management practice is to plan ahead, before employers even think about entering a particular part of the world,” he says.
Indeed, companies need to educate executives to an area’s local customs, and to act using “common sense business acumen,” says Campbell. Executives should be aware of their surroundings because if something happens in the area and they are caught off guard, they may not be afforded the same safety measures they have locally in the U.S.
“There are also cultural expectations about the way business is done,” Campbell continues, “but employers should make sure their executives know that they can’t operate differently than was is expected and required in the U.S. just because it’s acceptable in that area of the world.”
U.S. executives, while working abroad, are held to the requirements of the Foreign Corrupt Practices Act, Campbell notes. For example, even if it’s acceptable locally to have an intermediary help a firm win a contract and for that, the firm gives the intermediary certain enticements, it’s not acceptable under the U.S. law. Executives have to conduct themselves and operate their operations just like they would if they were in the States.
Matt Chamberlain, manager of Consulting Services in Cartus’ Swindon, U.K. offices, offers additional best practices “to ease the burden” for executives being sent to hardship locations. The most common best practice is providing security briefings to executives and their families prior to moving to the hardship location, which cover very specific threats within that country, including terrorism and political unrest, Chamberlain says. Cartus also recommends mandatory cross-cultural training.
Companies should also consider conducting candidate assessments to determine employees’ readiness to go into hardship locations, and employees can assess themselves if they can handle it personally and professionally, Chamberlain says.
Since finding suitable secure housing may be a challenge, many companies have their executives and families stay within a compound where housing is likely of a higher standard compared to local housing. If the level of hardship is high, then Cartus’ staff advises a split-family situation, in which the executive is based in a remote location, but the family is based in a location with better infrastructure, and the executive visits them on the weekends.
“Russia is a good example, as there is massive disparity in the level of infrastructure services,” Chamberlain says.
Transportation in emerging markets or hot spots can be “a definite challenge” due to traffic conditions or crime in certain areas.
“For example,” Chamberlain says, “people shouldn’t stop at traffic lights in major cities in Brazil, or their car could get hijacked. Companies typically provide security escorts or a car with a driver, and will discourage employees from using public transport.”
Companies should give their executives hardship allowance to compensate for the stress and everything that comes with going to such a location, Chamberlain advises. The allowance is normally a percentage of salary based on the hardship index, which calculates the difference between the conditions of their home country and the hardship location.
“We also recommend that companies provide their executives all-expenses paid rest and relaxation trips in a destination location, so executives working in hardship locations can literally have a breather for a week or two,” he concludes.