Need global D&O protection? A growing number of choices are available.

• Author: Zacharias, Carol A.N.
• Position: RISK MATTERS

U.S.-based multinational companies purchase directors and officers (D&O) liability insurance for the parent company board as well as boards of subsidiaries around the world. U.S. insurance laws and regulations generally do not preclude worldwide coverage, the most notable exception being restrictions imposed by the U.S. Office of Foreign Asset Controls. However, local countries often tightly control insurance purchasing. These local country restrictions may create insurance problems for local executives.

Many countries explicitly require that local companies and individuals buy insurance from locally organized and licensed insurers, and prohibit insurance with foreign insurers. As a result, a local director may find that he or she lacks the protection of a D&O insurance policy. However, a growing number of new alternative insurance options are becoming available to protect executives in restrictive countries.

Buy local

One alternative is to purchase a local D&O insurance policy from a local insurer. This satisfies the local country's requirement that insurance must be purchased from a locally licensed insurer. Often it is best to purchase the local policy from a local insurer that is an affiliate of the U.S. D&O insurer because the relationship can lend synergies in notice, claims handling, policy provisions, policy periods, renewals and more. However, buying local policies can be daunting. Different countries have different regulatory requirements or market practices as to the scope of coverage, the process of buying a host of local policies can be both expensive and cumbersome, and the policies will be in foreign languages.

FOS policy

Another alternative available to European subsidiaries is to buy a single policy in a country that is within the European Economic Area, under regulations known as Freedom of Services (FOS) regulations. FOS regulation provide that a policy bought in one European Economic Area country is valid in another, so long as certain requirements are met. The FOS policy is often best purchased from a local insurer that is an affiliate of the U.S. D&O insurer providing coverage through the parent company's program, because the relationship between the two insurers may lend critical synergies regarding notice, claims...