McBride for Business Blog


November 1, 2016 // Guest User // No Comments »

The following blog is from Donna Pankotai, a guest of McBride For Business.

In the past, the issue of global regulatory compliance was not considered to be a significant issue. However, with the emergence of enhanced communication technologies as well as increased local insurance market and regulatory tax sophistication, these revenue starved local agencies and/or countries are currently able to track and audit compliance in a manner not seen before. The end result of the current enhanced technologies is local regulatory bodies having ramped up their diligence in catching multinational firms out of compliance regarding their risk management and insurance programs. The conventional approach has been for companies and service providers to deal with pre-loss issues primarily centering on the actual insurance contract. The current “gold standard” now includes a considerable level of post-loss planning which can be even more important to the firm. Some examples in each category include:


  • Financial strength of each prospective insurance carrier is evaluated. What are the global ratings? Alternatively, in the absence, of global ratings an understanding of respective carrier reinsurance treaties can provide a clearer picture.
  • Do the policies purchased adequately protect the assets and future earnings of the organization?
  • Claims payment practices of prospective insurance carriers are analyzed. What is the reputation for fair and equitable settlements? Additionally, assessment of the ability to work with clients in resolving complex claim matters?


  • What adverse tax implications may impact the ultimate loss settlement funds?
  • Non-compliant risk management programs which trigger local tax and compliance audits.
  • Fines, penalties, revocation of local business license and in some cases imprisonment can result from non-compliance with local regulatory requirements.

The foundational below checklist can provide a good start in assessing the needs for your risk

management program.

1.What is the exposure? Are there:

  • Employees traveling outside the “home” country?
  • Assets and Operations outside the “home” country?
  • Products and/or services exports outside the “home” country?
  • Foreign suppliers contracted outside the “home” country?

2.How should one quantify the exposure?

  • Number of employees traveling to what countries?
  • Consistent currency measurements and exchange valuation date:
  • Annual figures for – Real/Personal Property, Sales, and Payroll
  • Annual Sales of products and/or services exported with breakdown by country
  • Annual Cost of Foreign suppliers with breakdown by country

3.What are the regulatory compliance requirements?

  • Are certain coverages “compulsory” in respective countries of exposure?
  • Does the local law require local subsidiary to procure admitted coverage?
  • Is an “in-country” broker required?
  • Are there any contractual obligations which would require proof of locally admitted coverage?

4.Tax Strategies of the organizations?

  • Understanding transfer risk pricing concepts to assure equitable premium allocations are adequately documented.
  • How will the premium be paid?  Locally?  Centrally?
  • Will the local subsidiary take a tax deduction for allocated premium?
  • Will the local subsidiary need to pay premium tax “in-country”
  • Will the client need to pay any taxes outside of premium such as Federal Excise Tax (FET) or Value Added Tax (VAT)?

5.How should the claim be paid?

  • Is it necessary to pay the claim locally or to the Parent Company in the home country?
  • What are the tax implications to parent in their home country when claim is not paid locally?
  • Will Parent Company need to make a capital contribution to local subsidiary if not paid locally? What are the tax implications of such an action?
  • What time of loss will be utilized to trigger insurance coverage? (local time?)
  • What is the currency in which the claims will be paid? And how will the exchange valuation date be determined?

6.What services are necessary “IN-COUNTRY”

  • Local language support?
  • Locally claims administration?
  • Local broker support for questions, certificates, etc.?
  • Local Legal counsel?
  • Loss Control resources?

7.What are the factors in program implementation and administration?

  • Who are the program stakeholders (client/insurance carrier/broker) and what are their respective responsibilities? Establishing communication protocols between Parent, Local subsidiary, and service providers is paramount in avoiding chaos and providing an effective platform for the program.
  • What are the cultural considerations in country and between respective stakeholders?
  • What levels of insurance purchase and claims settlement authority will be local?
  • How are Loss Control efforts identified, implemented, and documented?

The complexity of each organization’s operations and geographic make-up will necessitate a unique approach for each risk. Routine evaluations along with the utilization of compliance tools and experts can provide the best defense against unknown assumption of risk exposures which can affect the company’s reputation and cause significant financial impact.


This posting is intended to be a tool to familiarize readers with some of the issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances.  This article should not be treated as legal advice to any person or entity.


About the Author:

  Donna Pankotai is President of DM Pankotai Consulting an independent strategic risk advisory company with expertise in multinational exposures and regulatory compliance issues.


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