By Anna Stover, New Dawn Risk
International Reverse Business, also known as Reverse Flow Business, occurs when a U.S. subsidiary of a foreign-owned parent company arranges an insurance policy in the United States to cover both the U.S. subsidiary and the international parent company. This is done by issuing an additional insured status or using the foreign parent company’s name with the U.S. subsidiary’s address. However, this can inadvertently restrict coverage and put brokers at risk of E&O (Errors and Omissions) claims from accidentally placing a domestic policy and overlooking global exposures.
Most domestic policies have US-only claims jurisdiction, lacking the necessary licenses and infrastructure to offer broader coverage. This means claims must be brought to the states for the policy to respond, which is adequate for firms with only U.S. exposure. However, this creates significant coverage gaps for businesses with global operations. Clients may see claims denied due to the absence of “worldwide” claims jurisdiction. Brokers should ensure global exposures are covered by finding policies in the Lloyd’s market, which can cater to claims brought anywhere in the world.
The consequences of inadequate coverage can be severe for both the client and the broker. The costs of a denied claim fall on the insured, who may then sue the broker for negligence, believing they had global coverage based on the broker’s advice.
A second complication arises in ensuring compliance with various tax authorities where the insured operates. Reverse flow policies can lead to unintentional tax avoidance, as the U.S. lacks the necessary tax licenses and infrastructure to process all required taxes.
This is where the Lloyd’s market excels. Lloyd’s is renowned for handling international claims through its extensive network of brokers, underwriters, and offices worldwide. Lloyd’s operates in over 200 countries and territories and ensures proper licensing, training, local relationships, and cultural awareness. They maintain up-to-date knowledge of local market conditions, regulatory changes, and emerging risks, allowing truly global policies to be placed. This ensures the insured’s global exposures are covered while providing clients and local agents with the assurance of compliance with international tax authorities.
The London market provides the infrastructure, expertise, and global reach necessary to manage and cover internationally exposed insurance accounts, effectively safeguarding both clients and brokers. Please reach out directly for any risks with international exposures.
