Without borders

Today's risk managers, responsible for managing the risk inherent in international operations and outsourcing across borders, have to take into account many different local legislators as well as the shifting sands of legislation in the territories their companies operate in. Insurers and brokers must be able to step up to the mark and do their part to deliver certainty to risk managers.

The number of examples of regulators and legislators putting their focus on the compliance of insurance programmes is rising. The German tax authority, for instance, has issued a letter to companies requesting proof of IPT payment by the insurance carrier, while under revised Swiss insurance supervisory law (article 4, ISL) it is mandatory for Swiss insurers to present a licence that is valid for any country where risks are insured. Furthermore, following European Commission legislation in 2004, member states' financial services regulators were given the power to govern insurers writing in other countries where they do not have authorisation. The list goes on.

Kvaerner

The Kvaerner case of 2001 is an example of the problem of the establishment of "location of risk" for foreign premium tax. The Netherlands' tax authorities argued that the Netherlands premium tax should be paid on that portion of the premiums that covered business operations in the Netherlands. Consequently, in 2001 the European Court of Justice agreed with the agency and stated: "A member state may charge insurance premium tax on a premium relating to the insurance of a subsidiary company established in that state ... It does not matter if the premium is paid by another company in the group ... The way in which the premium is invoiced and paid does not affect the question of whether or not tax is due."

This case showed that multinational insurance policies raise issues for each line of business such as the following:

- Where is the risk located?

- Does the insurer require a license in the country of risk?

- Is the insurer liable to collect and account for premium tax and other taxes in the country of risk?

- If not, is the broker or the insured liable to account for premium tax and parafiscal taxes?

- What is the insurer's exposure?

- What is the insured's exposure?

- What is the best way to eliminate or mitigate any exposure?

For multinational companies this is a lot of information to collate and interpret. As the Kvaerner case shows, tax must be paid according to the relevant tax laws of each country; many countries levy premium taxes and parafiscal taxes, also known as foreign premium tax, on non-life insurance premiums. The rules surrounding foreign premium tax vary depending on the territory and can be difficult to understand. The European Union has its own specific rules, but outside the EU rules vary by territory and so companies making cross-border acquisitions need to understand the inconsistencies in the location of risk rules. Furthermore, the responsibility for payment of taxes must be clear; is it the insurer (directly or via a fiscal representative), the insured or the broker that must pay in each country?

While collating and interpreting the information it is also necessary to keep on top of the changing legal and regulatory landscape and continually adapt risk management as necessary. Without this simultaneous understanding it is the case that transparent, compliant and sustainable risk management and international insurance programmes are simply not achievable. The price of uncertainty in these two areas could be a non-compliant insurance policy that is considered illegal by a local regulator, and therefore in unpaid claims.

Delivering the certainty

Over the past five years Zurich has worked closely with brokers and customers to assess the implications of furthering of the complexity of international tax and licensing rules applicable to multinational insurance business. After significant investment in systems, their content and our people, we have now embedded an enhanced set of underwriting processes and structures for multinational insurance programmes. Additionally, we offer solutions that are sustainable and provide benefits to customers and brokers.

The proposition involves new processes and programme structures using a proprietary database, and these solutions, developed and maintained by a team of lawyers working in conjunction with our underwriting, legal, and compliance teams, are designed to address the increasingly complex legal and regulatory landscape, certificate the taxes paid in each country and improve the structure of our international insurance programmes.

A crucial target for us has been to deliver certainty to risk managers that need to be able to give an affirmative answer when their chief executive officer asks them 'is my insurance programme compliant across the world?' In a complex environment, insurers, brokers and customers must be in control. We must move from uncertainty to certainty to deliver that peace of mind.

- Mark Platten, Chief underwriting officer, Zurich Global Corporate, UK.

This article is from a Zurich supplement entitled ‘Corporate Risk’ which was distributed with the November edition of Professional Broking.