Zurich head of international sales and distribution for APAC, Fernando Denes, explains why local subsidiaries of multinational companies may not have the right insurance coverage.

Difference in conditions and difference in limits clauses are a common feature of insurance policies for multinational companies. They are often attached to group level insurance policies to cover gaps in coverage for subsidiaries in overseas jurisdictions. These clauses are widely used, but many risk managers are unaware of their many limitations, pitfalls, and possible dangers.

Most multinational companies see DIC and DIL clauses as a silver bullet for fixing their subsidiaries’ local insurance needs. However, there are significant limitations to the clauses, which can leave subsidiaries without adequate cover, or unable to use insurance services when it is time to claim. Many multinationals overlook the limitations of DIC and DIL when they arrange their insurance. Risk managers should be fully aware of this issue.

Put simply, DIC and DIL clauses do not work in certain countries. Jurisdictions including China, Malaysia, Japan, and Indonesia have high restrictions for cover provided from abroad, such as DIC and DIL Companies often take out an international policy at group level and expect DIC/DIL clauses to cover them, but face extreme difficulties when they try to claim.

In many countries across the Asia-Pacific region, there are strict rules on what insurance coverage local businesses can receive. In some countries, local companies are not allowed to receive claims payments from a foreign insurer. This can place a significant financial burden on the parent group to cover costs, and tax issues often prevent parent groups from being able to pass on claims payments to their subsidiaries. Other jurisdictions do not allow loss adjusters appointed by foreign insurers to provide services. In fact, very few countries in the region, such as Australia, Singapore and Hong Kong, would generally allow local subsidiaries to receive full insurance services from their overseas parent group policy.

Risk managers should be mindful of the fragmented insurance regimes across the Asia-Pacific region. They could find themselves with insufficient cover despite having a DIC/DIL clause. They may be unable to draw down money from a policy when a payment is urgently needed. Risk managers have a service expectation and this is often not met. Many insurance providers do not reveal the true limitations of DIC and DIL clauses. At Zurich, we make sure clients receive the detailed insight and coverage they deserve, including the limits and pitfalls of DIC/DIL clauses in various countries.

How can risk managers ensure they have the right coverage? It is essential multinational companies tailor their local insurance needs, using trusted expertise in each region. A reliable insurer should balance DIC/DIL clauses with individual policies in certain jurisdictions, to ensure comprehensive coverage. Insurers have a crucial role in guiding clients. The insurance industry can improve the way it handles multinational insurance arrangements. Insurers and brokers should clarify the key issues, and keep their clients informed about coverage limitations.