Both Sides Now

Over the past two decades, Canadian companies have increasingly engaged in international commercial activity, expanding their operations globally thanks to fewer trade barriers and advances in communication technology and transportation services. Not only are these companies selling their products beyond the Canadian border, they are also investing in production facilities and forming partnerships with suppliers, producers and innovators worldwide.

The Canadian Manufacturers & Exporters’ Management Issues Survey for 2012-2013 notes that Canadian companies expect globalization pressures will propel a shift in where they do business over the next three years. This cross-border trend is so strong, in fact, that the number of companies selling within their respective home provinces is expected to drop by 17%, while major growth in exports is projected in markets such as Eastern Europe, China and Brazil.

And this shift is expected to continue. Additional research from the Conference Board of Canada’s Global Commerce Centre highlights how the cross-border trend for business is expected to continue and diversify over the next decade. While the report found that the United States will continue to be Canada’s largest export market for the foreseeable future, Canadian exports to the U.S. will expand only modestly through 2025. Further, the share of Canadian goods exports to the U.S. will drop from almost three-quarters in 2010 to slightly more than two-thirds in 2025.

By contrast, the Conference Board report found Canada’s share of goods trade with booming China will expand from 3% to almost 7% by 2025. In addition, Canada’s exports to India will more than double, and will be roughly equal in size to the share of exports to our North American neighbour, Mexico.

The report found that growth is expected in Eurozone countries as well, up to 6% in 2025 from 4.5% in 2010.

CLEAR UNDERSTANDING

While greater international commercial activity has had a positive impact on the volume and value of Canada’s exports and the bottom line of many Canadian businesses, the risk exposure of individual businesses has also increased. With evolving Canadian rules and recent changes to insurance markets, having a clear understanding of current international business practices and regulatory protocols are two critical drivers for client and broker success on the global stage.

To effectively manage this added cross-border risk, brokers must be well-informed if they are to provide effective and valuable advice to their clients. Brokers need to have a clear and detailed understanding of the complexities and risks associated with their clients industries, as well as the different legal systems and jurisdictions.

Insuring a company’s international and global operations is complex and cross-border commerce calls for additional compliance and regulatory considerations for insurance. Brokers and their clients must perform the necessary due diligence to ensure that general liability limits and coverage extends to cover exports when doing business with the U.S. As well, U.S. regulations require that brokers be licensed in each state in which they are doing business, and that policy taxes be filed with the local state’s superintendent of insurance.

Determining if a client has international exposure can be complex and it is never as simple as confirming if said client has physical assets or properties in another country. A client may have international exposure if it sells products through the Internet, travels outside the country to trade fairs, relies on foreign suppliers, or competes for contracts outside Canada.

To truly help their clients and add value to the relationship, brokers need a comprehensive understanding of all aspects of their clients’ businesses to be able to advise and provide guidance on the most appropriate insurance policy. Brokers with clients in the oil and gas industry, for example, must keep up-to-date with industry regulations and closely examine and understand the sector-specific policy language to meet their clients’ insurance needs.

While cross-border insurance offerings present significant challenges to the broker, nation-specific regulations must be considered alongside any industry-specific conditions. For example, in Mexico, common co-pay clauses in policies require that the claimant pay a percentage of the loss above the deductible. Despite a $10,000 deductible, with an earthquake loss, a claimant could be faced with an additional deductible of 5% of the loss.

FILLING INFORMATION GAPS

In light of these considerations, brokers have a clear responsibility to ensure their clients know and understand the workings of their policies, and must work to identify the right resources to fill the critical information gaps that are created through multi-national insurance policies.

Finding the right partner for cross-border business is no easy task. As roughly less than half of domestic carriers do not provide coverage in other countries, Canadian brokers must often do their own research to find a reputable agent in the country where the client requires coverage.

Brokers must understand how to co-ordinate insurance services with any foreign providers, as well as how to navigate the international banking regulations and fluctuating currency exchange rates.

Moreover, the insurance rules and regulations often vary within a foreign country. In the U.S., for example, the regulations vary from state to state.

As Canadian brokers try to partner with foreign brokers on a client-by-client basis, these legal and jurisdictional factors can result in a Canadian broker being placed at a competitive disadvantage. In many cases, for example, by working with an intermediary, brokers lose a percentage of the commission and jeopardize their client relationship.

To mitigate this risk, Canadian brokers may choose to work with an experienced cross-border partner that offers a network of international offices and expertise.

This allows brokers to access products that cover clients’ risks, wherever they are located, while brokers can benefit from a partner’s local insight, knowledge and expertise.

As Canadian businesses continue to expand globally, it is anticipated so too will the demand for the services of brokers who can provide cross-border insurance solutions.