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Insuring in the USA, what's the big deal?

As UK companies consider the need to look beyond traditional markets, for their products and services, they also need to ensure that they comply with local insurance and tax regulations and protect their balance sheets from additional exposures.

Written by Paul Brown on 26th June 2019

Insuring in the USA, what's the big deal?

As UK companies consider the need to look beyond traditional markets, for their products and services, they also need to ensure that they comply with local insurance and tax regulations and protect their balance sheets from additional exposures.

Unsurprisingly, many UK companies are attracted by the opportunities of exporting products, or setting up operations, in the largest global economy and it is estimated that 32 per cent of FTSE 350 companies now purchase insurance in the United States of America (US).  

Many companies assume that the risk exposures, practices and procedures, they are familiar with in the UK, are the same the world over. However, that is not the case, so companies need to understand the US market and how to protect their operations effectively.

The USA consists of 50 separate States, each with their own separate legal jurisdiction, their own courts and their own laws, in addition to federal laws and courts. Each State’s demographics and political leanings can influence the level of court awards to claimants.  New York and California, for instance, are known for awarding high levels of compensation of claimants.  

Simply extending a UK policy to cover the US is unlikely to provide the best solution and UK companies should consider arranging local policies in local territories that cater to local laws and regulations, linking to a master policy issued in the UK.

 

The US has a reputation for big settlements for sometimes frivolous-sounding lawsuits, such as Liebeck v McDonald's Restaurants (1994) in which a jury awarded US$2.86m to a customer after she spilled scalding coffee on herself (later reduced to US$640,000).  Claims frequency is therefore likely to be increased and the recent case where a Missouri jury awarded US$72m to the family of a woman who died of cancer found by the court to have been caused by Johnson & Johnson talcum powder, should also act as a reminder that the limits of indemnity purchased when trading in the US need to be generous.

UK companies operating in the US need to be aware of all local insurance rules and comply with them. For example Worker’s Compensation needs to be purchased in the US and whilst UK Employers’ Liability cover indemnifies the insured for injuries to employees, US Workers’ Compensation policies also cover loss of earnings and medical expenses and because the scope of the cover is greater, Workers’ Compensation insurance is often more expensive.

Duties to customers are also often more onerous than in the UK. UK manufacturers and retailers selling products in the US can be exposed to a wide range of risks because of ambiguities around what companies need to do to protect their customers. ‘Failure to warn’ is a common accusation and businesses are in the unenviable position of balancing the need to warn consumers against every conceivable danger with trying to produce reasonable and practical communications relating to their products.

UK companies that are setting up operations in the US also need to bear in mind the range of natural catastrophe property exposures. Hurricanes, hailstorms, tornadoes, snow storms, earthquakes, droughts, floods, wildfires and cyclones are all common and the costs arising from such catastrophes can be massive. The U.S. has sustained 246 weather and climate disasters and counting since 1980 in which overall damages/costs reached or exceeded $1 billion. The total cost of these 246 events exceeds $1.6 trillion when adjusted by 2019 Consumer Price Index.

http://www.ncdc.noaa.gov/billions/events.pdf

With the potential for increased claim frequency and severity it is evident that the US market offers significant risk exposures and it is easy to see why Insurers consider that substantial premiums are warranted. Without the right cover, an event such as an earthquake or a class action lawsuit could have a catastrophic impact on profits and shareholder value – or even put you out of business.

UK Companies considering expansion into the US should engage early with an Insurance Broker partner that understands the issues.  If you would like to discuss this matter further then please get in touch with your usual Franklands’ contact on 01332 545720.

Source:  https://en.wikipedia.org/wiki/Liebeck_v._McDonald%27s_Restaurants

                https://mesowatch.com/johnson-johnson-ordered-to-pay-72-in-talcum-powder-cancer-lawsuit/


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