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4 considerations when structuring multinational insurance programs with Canadian risks

Posted on Nov 25, 2011

Consider 'insurable interest,' says ACE report

Canada has one of the most sophisticated regulatory regimes in the world, according to a new report by ACE Group, which aims to help multinational enterprises operating in Canada understand and navigate the country’s cross-border insurance regulations.

“Canada and its provinces and territories have among the world’s most sophisticated regulatory regimes overseeing the purchase and implementation of insurance programs,” said Suresh Krishnan, general counsel for ACE’s multinational client group. “With a clear understanding of Canadian federal and provincial laws, risk managers, brokers and insurers may more effectively navigate the multifaceted landscape of cross-border insurance regulations in Canada.”

One of the report’s key findings revealed that provincial and federal regulations in Canada create a challenge for multinational organizations seeking to insure Canadian-based risks in a consistent and cost-effective manner. However, a multinational insurance program may be designed in a way that satisfies the need for consistent coverage and limits for an organization’s worldwide and Canadian operations, and that exhibits deference to the tax and regulatory requirements in Canada.

In addition to the local affiliates purchasing local policies in Canada, the parent company may purchase an excess policy (whether DIC-DIL or otherwise) to effectively insure coverage gaps and provide adequate limits, stated the report.

To provide a logical response to the regulatory and tax challenges in provinces that prohibit non-admitted insurance or impose conditions on brokers and insureds that use it:

1) The policy should be issued to the parent company as the sole insured in the parent’s jurisdiction.

2) The policy should exclude any of a parent company’s subsidiaries, affiliates, and joint ventures located in provinces that do not permit non-admitted insurance and in provinces that impose conditions on brokers and insureds when non-admitted insurance is procured.

3) The policy could insure the parent company’s insurable interest in the properties, shareholdings or legal and contractual obligations of the excluded subsidiaries, affiliates, and joint ventures, consistent with laws of the parent company’s domicile. However, certificates of insurance issued in Canada may only reflect the terms, conditions and limits of the local policy and may not include that of the excess policy.

4) The principles of insurable interest are also recognized under Canadian jurisprudence and could be considered by a Canadian enterprise seeking a multinational insurance program for its risks outside Canada.

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