The natural disasters of 2011 have been challenging for a number of countries over the last year, not to mention their insurers. As the flood waters recede, there are practical issues regarding claims payments that need to be considered.
A global insurance programme is chosen by multi-national companies to achieve a consistent level of insurance across their corporate structure. This involves the placing of a master policy that covers the insured and its overseas local offices. A number of local policies are also placed in the overseas jurisdictions to meet minimum insurance requirements for the local office.
Specific laws and regulations relating to the conduct of insurance activities in each jurisdiction can affect the payment of claims under global insurance programmes. A recent example is the case of Adidas, the sportswear manufacturer, which suffered a fire at its warehouse in India in 2010. The Adidas group held a global insurance policy covering its head office and its overseas branch offices, including Adidas India. Two claims payments were made by insurers for the fire - US$20 million to the head office and US$10 million to Adidas India.
The Indian tax authorities sought to tax Adidas India for the claims payment made to the head office. Adidas attempted to resist this decision on the basis that the premium for the global insurance policy was paid by the head office outside India and, as such, the claim payment received by the head office was not taxable. The investigation by the Indian tax authorities found that various email exchanges between executives of Adidas India and the head office showed that the claims payment to the head office belonged to Adidas India and was made to the head office to avoid taxes in India. As a result, a tax was levied against Adidas India.
Other practical issues have recently arisen regarding claims payments by insurers located outside the affected jurisdiction. Thailand, for example, is conscious that a large flow of monies from claims payments will be made into the country over the next year as a result of the floods in October 2011. Accordingly, it has implemented payment procedures and reporting requirements to monitor these payments; the Anti-Money Laundering Office of Thailand requires insurance companies to report all cash transactions exceeding two million baht and property transactions in excess of five million baht. Similarly, Thailand banks must now report transactions that are electronic fund transfers or electronic payments involving cash of five hundred thousand baht or more. Insurers will have to provide information to the bank on the loss and the reasons for the payment.
All parties involved with claims payments under a global insurance programme need to be aware of the applicable laws in a foreign jurisdiction before making any payments into or out of that jurisdiction. The failure to follow local laws and regulations could result in additional taxes, fines, confiscation of the claims payment or even imprisonment.