Overseas claims present a different set of challenges. But managing expectations both internally and externally is perhaps the biggest challenge facing global risk managers, carriers, and brokers alike.

Most risk managers with global risk management programs know that these programs have

If asked about their domestic claims program, risk managers, brokers, and carriers would be able to recite claims histories, claims personnel, and loss information directly from memory. With some additional work, most would be able to produce a loss ran that details large losses, claims counts, and claims descriptions for the past five years. Still others would be able to detail the risk management information systems (RMIS) and third-party administrator (TPA) network they use and the specifications for it.

Now ask that same team about its global claims experience and claims handling capabilities and strategies. The answers aren't as easy. But each is critically important to the successful resolution of a global claim.

Global Challenge

Unlike claims in the United States, claims overseas present a different set of challenges because there are additional forces that can impact the claim outcome, including:

* Legal and regulatory system International claims are not subject to one code of law, but many. For example, legal systems that adhere to the Napoleonic code will treat a claim differently from those adhering to U.K. Common Law. In addition, insurance codes, compulsory coverages and nationalized coverages will vary by country and impact the final payment in a claim.

* Insurance brokers: Depending on the country of the claim, an insurance broker can be instrumental in assisting claims investigation and resolution. Their carrier relationships and TPA relationships can set the tone of the claim handling.

* Insurance company: The claims capabilities of the insurance company in the country where the claim is being settled will help or hinder claims settlement. Once you have a truly global insurance program, the subset of carriers that have global capabilities is much smaller.

* Reinsurer: Depending on the program set up, reinsurers may also influence the direction of the claims settlement. Heavily reinsured programs such as a difficult property placement will be strongly dependent on reinsurer cooperation for claims settlement.

* Loss adjusters: Many global programs will use loss adjusters to facilitate claims settlement for a client using additional investigation and claims management.

* Expert advisors: Hired by the court or insurer, these experts can add significant local expertise to a claims settlement negotiation.

* Insured's local management: These internal partners can be a critical piece in the success or failure of a claims settlement.

From a risk management standpoint, most of the players in a claims situation have been prescreened during the selection process. Failure, however, to address the importance of the local management before a claim can only further complicate matters when a claim does arise. A key element of a successful global risk management program is knowing your local management. The importance of this is highlighted in a claims situation.

Before a claim, it is critical that risk managers be aware of divergent interests. What is important to the local management may not be a corporate goal because local managers are looking at a profit and loss picture that impacts them. Developing relationships worldwide will enable the risk manager to learn these interests and balance them toward the corporate good. In addition, maintaining personal contact with key managers will develop a cooperative atmosphere when a claim is reported.

In a claims situation, risk managers will need to involve senior management if they don't feel that they can maintain control of the local manager when interests diverge.

Risk managers must also understand the financial picture on a corporate and local level. According to Ted Flores, corporate risk manager, Griffith Laboratories Worldwide Inc., the loss adjustment objectives must be consistent with the business objectives of the local management. In addition, he feels the risk manager must assist with the timing of a settlement so that the local balance sheet is protected wherever possible. This can be done by facilitating cash advance or "payments on accounts" for the local plant.

A final challenge, Flores believes, is that a risk manager needs to understand when to travel. The personal attention from a corporate risk manager on a claim can significantly increase the support from local management for a risk management program and therefore justify the cost. He says "a risk manager should travel not just when the loss is large, but when it has significant impact on the financial results locally." Additional situations that often require a personal visit from the risk management department include:

* Significant loss potential

* Large impact on financial results locally and/or corporately

* Cash advance required

* Limited claim handling capabilities locally

* Broker support needed

* Coverage dispute possible

* Potential for subrogation

Insurer's Perspective

From an insurance standpoint, the principles of claims handling do not change with a global claim. Once a claim is reported, there needs to be an evaluation of the insurance coverages in place and an investigation to determine the facts of the loss. The extent of damage is established and a conclusion is negotiated.

After that, says Bertina Floyd, assistant vice president, claims and customer service of Ace USA-US International, the differences abound. Key differences, she says, include: language; currency exchanges; claims valuation; local market practices; and local culture. The important steps in handling global claims occur before a program is bound. From a carrier's viewpoint, it is essential to determine the expected level of claims services, special reporting requests, risk management information needs, and systems requirements before binding any program. Then, the carrier should determine its claims capabilities and only promise what it can deliver.

From there on, communication is the critical element to success. The carrier's network must be advised as to what commitments have been made to a client. Communication protocols must be established for claims reporting and notifications should include coverage summaries. Often, in a rush to settle a claim, the chain of communication is shortened, which can lead to confusion and mistakes. The local claims office plays an important role in the claims settlement and needs to be managed effectively.

Another element to a successful claims resolution is the management of the adjusting process. The type of loss adjuster--independent or network-based--will determine how the claim proceeds and reporting is done. The fact-gathering process must also be monitored to ensure that work is not duplicated. Most importantly, managing the adjustment process means remaining in control.

Claims settlement amounts are the most visible difference to most on an international claim as they tend to be much lower than in the United States. This is due to four key elements: valuation, negotiation, local market practice, and local culture. Valuations are impacted by such factors as significantly lower annual incomes, lower life expectancy, etc. Local culture and market practices place importance on items that are not currency related, such as animals or goods in lieu of a payment.

Another piece of a global claim is the allocated loss expense. The cost of a claim settlement overseas is much higher on an adjusting fee basis. The cost of actually adjusting a claim can also be significantly higher than in the United States. But the litigation costs can be lower due to the lower litigiousness worldwide.

When asked to identify claims trends outside of the United States, both Floyd and Flores identified emerging trends. As Flores points out, "What goes around comes around, and exposures once thought indigenous to the United States are now cropping up worldwide."

These include: employment litigation; directors' and officers'; product contamination; kidnap and ransom; repetitive stress injury; health and safety regulations; and environmental liability.

The Broker's Role

The broker's participation in the global claims process is also divided into pre-loss and post-loss activities. Before a loss, a broker should:

* Develop the program structure best suited to the company's needs.

* Fully explain the implications of the program structure selected.

* Assist the risk manager in prescreening carriers, TPAs, etc. that will help manage the risk management program.

* Develop procedures for claims reporting, management, and communication.

The most common global program structures are a control master program (CMP), a difference-in-conditions (DIC) program, a local program, and a nonadmitted program. A control master program consists of a master program negotiated in the United States or home country. Local underlyers are issued by the same carrier in each country where the insured has operations.

A difference-in-conditions program consists of a master policy being negotiated in the United States or home country. Local policies are placed independently of the master policy in each country where the insured has operations. The DIC policy sits in excess of and is reduced by the local policy limits.

A local program has no master policy; all local companies purchase insurance independently. A nonadmitted program has a master policy which will sit primary in each country.

If a CMP is chosen, the admitted policy offers local claims resources, local currency, and valuation. But this may limit the ability to provide some of the indigenous coverages expected. The nonadmitted insurance program may provide structural ease in doing business, but a risk manager must be prepared for a 'do-it-yourself' claim with more hands-on work and possible tax implications.

Prescreening of all service providers, including brokers, should also be done preloss. Key service requirements that a broker should determine for a risk manager are:

* Claims handling expertise of the local contact at the insurance carrier broker, and TPA. Most providers will tell you the company's experience, but the local contact is the main and more important contact.

* Global coordinator contact information. There should be a main point of contact on any claim that coordinates all activities and provides information to the broker and risk manager.

* Communication tools. A broker should provide specific forms as well as review forms being used by other service providers to audit adherence to the risk manager's protocols.

* RMIS specifications. A broker should develop system requirements as well as review providers' technology for claim reporting lags, language issues, currency exchange protocols, etc.

While claims outside the United States may happen less frequently, the key to dealing with them most effectively is through preparation and knowledge of the players involved in settling a claim. Managing expectations both internally and externally is perhaps the biggest challenge facing global risk managers, carriers, and brokers.

Elizabeth Demaret is a vice president in Near North National Group's global operations practice.