We've been using our wording worldwide, why is this not possible in an international program?

All three are fundamental to the coverage of assets in foreign countries, and property in particular. While a risk manager might be confident that their policy functions the same way in every country where local policies are issued as in their home country, they probably should sit down with their insurer to fully understand how this is achieved and if there aren’t some rocks hidden in murky language waters.

Manuscript wording
This brings in the matter of “manuscript wording” – the importing of a specific wording into a market – often used to mirror the wording of the policy in the home country on local policies that are issued around the globe, clause for clause and word for word. Companies often ask for manuscript wording but, unfortunately, it’s a lengthy, complicated and expensive process. This is because local laws and regulators generally require policies or new clauses to be filed locally. In America, for example, a policy is required to be filed in every one of the 50 states in which is to be used, which would involve a lot of filings and takes a lot of time. The process is the same even if it is just a clause and in some countries, it is even the case for individual words and even simple ones such as “the” or ‘a”.

On top of local regulations, there are also language issues. Many countries where English is not the official language – for instance, France and Germany – require that the policy is in local language and thus needs to be translated. When you think about it, this makes sense because any dispute over the policy would be conducted in the language of that country. And of course only the local policy in local language, not the English (original version) one, is up for interpretation in court. These countries won’t countenance a claim made under a policy that doesn’t meet the requirements of domestic laws and regulations and any ambiguity based on translation be interpreted under domestic laws and respective practise and precedence. That’s another argument against manuscript wording.

Difference in conditions
Now what to do when one cannot get all the conditions on the local policy, although as much is mimicked of the original policy with a local wording in respect to intent? This is when the Difference in Conditions (DIC) clause on the Master policy comes in and acts a net or filler for situations that could not be provided for in the local policy, but are covered on the original policy. Through this, any gaps are filled and a uniform overall cover is established.

Some countries allow for claims under DIC to be paid into the respective country, while others are more restrictive and don’t allow for such claims payments. In those cases the cover will pay in the original policy country. Now it might seem this is less effective than a mirrored/manuscript wording, but first of the DIC ensures that what should be covered is covered, which is not clear under the manuscript wording situation and DIC also gives clarity on where the claim will be paid, so there is no misunderstanding or ugly surprises.

Cobbled together
Difficulties over foreign manuscript versions of the master policy happen because of deficiencies in the latter. The master policy is often written in the home country of the company, based on local market practices, legislation and respective understanding and interpretation, without full recognition of the problems that can arise when this is transplanted and translated and claims are made offshore. To put it bluntly, some master policies are cobbled together on the basis of glaring misconceptions about other jurisdictions.

Problems also occur when companies become convinced there’s little point in changing a master policy that has seemingly stood the test of time. Yet circumstances change constantly. Regulations and laws are always in flux. And no claim is exactly the same as another. Just because a claim was settled, say, a few years ago, doesn’t mean a subsequent one will be accepted in the future. In the European Union, for example, regulations are tightening all the time across the 28 member states in ways that can directly affect the status of a claim.

At Zurich we are regularly asked to advise on master policies and have found them unworkable or deficient in practice.  

Nasty surprises can occur in all kinds of areas but issues over property crop up constantly. One reason for this is the distinct rules that exist in most countries and the respective differences in legal and regulatory standards that apply in different countries around the world. That’s why the master policy should be revised and reviewed at regular intervals in the light of changed circumstances and the overall scope where coverage is required.

A good policy and program structure incorporates local differences, while providing certainty and clarity on what is covered where and how and thus where claims will be paid consistently.