Difference in conditions and difference in limits are valuable clause enhancements to a client’s multinational program when uniform terms and conditions are desired to resolve international losses.
The COVID-19 pandemic, natural disasters and other unpredictable events, such as the cargo ship that blocked the Suez Canal, have created a confluence of circumstances in which agents who serve companies with international operations must carefully consider how best to protect their clients against global risk exposures.
A U.S. multinational insurance program is designed to respond to global occurrences that are difficult—and sometimes impossible—to predict. Every country has specific, constantly changing laws, rules and regulations and how a U.S. multinational insurance program is structured critically impacts how or if it can properly respond to losses occurring globally.
Agents and brokers can help guide companies to fully understand the complexities of a holistic global insurance program, providing greater assurance of consistency and compliance to comprehensively manage foreign loss, regardless of the country or region where the loss takes place.
Incorporating difference in conditions (DIC) and difference in limits (DIL) clauses into the global master policy can assist greatly when uniform terms and conditions are desired to resolve international losses. DIC and DIL clauses can be valuable enhancements to a client's multinational program.
For U.S.-based multinationals, a U.S.-domiciled master policy must be in place for coverage to interact with foreign in-country policies. If a claim occurs against a country's local policy but the terms of that local policy do not respond, a DIC clause means the master policy's broader terms will apply to the loss. In instances where the local policy limits are exhausted, a DIL clause means the master policy's higher limits can be drawn upon to facilitate claim resolution.
For example, consider how a product liability claim of $5 million occurring in China can be resolved against a U.S.-based multinational with a primary $10-million, U.S.-issued master policy and $1-million local policy issued in China.
A large issue existing in this scenario would be determining how and where the payment can be made and to whom. Claim investigation under the local policy would typically be handled in the local jurisdiction, which in this example is China.
Following exhaustion of the local policy limit or if there is no coverage under the local policy, the U.S. policy DIC and DIL clauses can be utilized to determine coverage, if any, under the U.S. master policy, leveraging the master policy terms, conditions and limits.
In this scenario, assuming coverage under both policies, the local policy would respond first, while the residual claim amount would be drawn from the master policy's available aggregate limit.
DIC and DIL claims are frequently triggered across property, casualty and specialty lines of business, according to Chubb data. According to Chubb claims data analysis from 2018-2019, the clauses are utilized in:
- 30% of product liability claims.
- Nearly 20% of general liability and commercial automobile liability claims.
- 18% of financial lines claims.
Navigating the nuances of claims payments triggered under the DIC and DIL clauses is essential to ensure a compliant global program. DIC and DIL clauses stipulate the protocol for claims resolution if the insurer is not licensed or permitted to make payment in the jurisdiction where the loss occurred. Understanding how and where to pay an intricate claim legally can be complicated and carry unforeseen consequences, such as penalties and sanctions, if not handled appropriately.
Complexities abound in multinational insurance, and requirements differ widely from country to country. Insurance licensing, policy issuance, claims payment, premium taxes and more all have implications that warrant serious consideration requiring a multinational carrier with specific knowledge and expertise.
Agents and brokers should consider working in collaboration with a multinational insurer that has a global footprint of resources, supported by local professionals who are knowledgeable of jurisdictional insurance rules and regulations. Insurers should possess expertise in complying with in-country mandates surrounding policy issuance, premium processing, claims handling and payments of foreign loss.
This should be complemented by the multinational insurer's network of licensed adjusters and claims personnel to help ensure the best possible results from claims and losses are attained.
Tom Harris is executive vice president of Chubb Global Services. Patric Jones is senior managing counsel, Chubb Global Multinational.