While pushing to open up new markets to access foreign customers, American insurers are working hard to provide their U.S.-based clients that have operations abroad with comprehensive coverage to ensure their foreign assets are protected.

Jon Farber, president of Travelers Global Underwriting, said obtaining coverage for foreign assets is critical for the simple reason that standard U.S. policies end at the border.

As an example, he noted that a U.S. product liability policy would only cover events within this country. "The suit would have to be filed in the U.S." for coverage to apply, he said, "and the event would have to occur in the U.S."

In many cases, he said, limited foreign risks can be written within a U.S. policy, providing coverage for small assets that may only be in another country temporarily--such as computers being used at trade show. "If you don't have a physical asset" in the country, then a local policy may not be needed, noted Mr. Farber.

However, he said, for larger exposures--generally those above $1 million--"you need a local policy." Without a local admitted carrier, he said, a U.S. insured could run into trouble in dealing with a major claim, specifically involving what Mr. Farber said could be "severe tax consequences."

When the need for a local policy arises, Mr. Farber said Travelers operates under one of its subsidiaries or with the International Network of Insurers--a global group of carriers cooperating to provide local coverage in nations around the world.

As an example, he said that if a client needed a policy in Germany--where Travelers does not have a subsidiary--the policy would be issued by the Victoria Group, one of that country's largest insurers, via the INI network.

Through INI--of which Travelers is the largest member--Mr. Farber said, "we've found a way to provide coverage anywhere Travelers desires to across the globe."

However, just like the different U.S. states, Mr. Farber noted that different countries are going to have different laws regarding insurance policies and coverage.

To account for that, he said Travelers offers "Global Companion" for its U.S. policies, which together are known as a master control program.

The Global Companion coverage--offered on a nonadmitted basis to the U.S. client--is designed to close any gaps in coverage that may result from differing laws and regulations between different nations. "It evens the coverage out," Mr. Farber explained. "It's something we can do to help the U.S. risk manager sleep a little better at night."

Increasingly, however, foreign operations of U.S. entities are starting to call for their own local policies. Shane McCaffrey, a vice president at AIG Worldsource, said master control programs "have been pretty steady for a number of years," but added he does see any push by clients to expand them.

"There certainly has been a change in the demand for overseas programs," he said.

Many areas--such as auto, general liability, property, marine and workers' compensation--have traditionally been covered through the master control program, or by a local policy where mandated by law, he explained.

Other coverages, however--such as umbrella, directors and officers liability, errors and omissions, or accident and health policies--were "pretty much all nonadmitted" until the past few years, he added, noting that whenever possible premiums would be paid by the parent company, with a charge possibly being passed along to the foreign subsidiary.

"They've started hearing that their local insureds should get their own policies and pay their own premiums," he said. "There's been more concern about having an admitted policy." Some of this is coming from brokers who can obtain global coverage for clients, he noted, but much of the discussion is being generated by insureds out of a "heightened concern about compliance."

In addition, some local insureds are pressing for their own coverage, since many must produce insurance certificates to meet local compliance standards, he said.

Claude Gallelo, managing director at Willis International, believes some of the increased demand for local policies can be traced to what he calls a "new world order" of corporate accountability in a post-Sarbanes-Oxley world.

"Risk managers are being challenged, 'Are your policies legal all around the world?'" since the Sarbanes-Oxley law requires company CEOs and CFOs to assert that they are operating legally.

Using nonadmitted policies to cover foreign assets may not be the solution, Mr. Gallelo said, explaining that in roughly 85-to-90 percent of countries around the world, nonadmitted insurance is illegal. If there is a loss, or the policy is discovered by local regulators, "many countries have fines or penalties, and officers can actually be put in jail," he warned.

Among the major issues, he said, are those resulting from a European Union court case brought by the Netherlands against Kvaerner Plc--a British company that offered its client coverage for its U.K. and Dutch business--in which authorities filed suit against the company for failing to pay premium taxes on the part of the coverage that related to Dutch business.

The Dutch won the case, and shortly afterward Lloyd's said it would begin collecting premium taxes on all nonadmitted policies to avoid similar problems. Other companies have begun to do so as well, he said, and other nations are also keeping a sharper eye on premium taxes.

Another issue he sees on the rise is "contract certainty," which is becoming official in the United Kingdom as of Jan. 1, 2008. Contract certainty, he said, means that insurers and clients are required to have all contract details settled within 30 days of coverage inception to close the deal.

"This is something that I feel will spread to other countries around the world," Mr. Gallelo predicted, noting that it helps reduce the likelihood of situations in which a loss occurs, and there is technically no coverage because a renewal was still in the process of being negotiated.

Looking forward, AIG's Mr. McCaffrey said it is hard to tell where the drive for local coverage will end. "I'm still not sure we know where it's going," he said, warning that the trend could go too far. "You could carry this to the point where it's irrational," he added.