Underwriting insurance contracts for international organisations and governmental organisations
To provide general guidance to the market about the complexity of dealing with insureds that are international organisations or governmental organisations
The purpose of this article is to provide general guidance to the market about the complexity of dealing with insureds that are international organisations or governmental organisations. This information is intended to support managing agents’ compliance with Lloyd’s Minimum Standards MS10 on Regulatory Standards and in particular REG 2.1.
This article considers coverage provided to the following types of organisation.
- International organisations. For the purposes of this article, international organisations are sub-divided into the following categories:
a. International governmental organisations (IGO). These bodies exist by a formal agreement between the governments of sovereign states (referred to as member states). Their purpose is to work in the spheres of political, economic, social or trade issues. Examples of such bodies include the UN and its agencies, EU, OPEC, NATO, IMF and WTO.
b. International non-governmental organisations (NGO). These are non-profit organisations whose purpose is to work in the sphere of medical services, humanitarian assistance, human rights, international development, sport or the environment. Examples of such organisations include, Médecins Sans Frontières, Oxfam, Amnesty International, the International Olympic Committee and Greenpeace.
- Governmental organisations. This article deals with two types.
a. Embassies and foreign diplomatic missions.
b. Foreign military bases.
International and governmental organisations will usually have a headquarters in a certain territory and premises and employees in other countries. The organisation may look to obtain insurance in one of a number of ways and often the coverage that it will seek will be similar to the coverage provided to commercial organisations. For example, the international or governmental organisation may look to purchase property cover for the physical assets that it owns. It may also seek to provide accident, health or life insurance for its employees. Employees may be expatriates working outside their main country of residence or they may be locally employed by the international or governmental organisation.
As part of the due diligence that is done prior to offering a quote, it is necessary to correctly identify the location(s) of risk for regulatory and tax purposes and then determine whether Lloyd’s underwriters are permitted to write (re)insurance risks in the territory (or territories) where the risk is located for regulatory purposes.
Due to the nature of insureds that are international organisations or governmental organisations, the identification of the risk location and the determination of whether Lloyd’s underwriters have permission to write the risk requires an assessment of a wider range of factors than those that would be considered for other types of insureds. These factors include, but are not limited to:
- The location of the insured and the location of any parties to whom claim payments may be made.
- The class of business and the perils to be covered.
- The structure of the policy, i.e., whether it is a master policy, group scheme or global contract. (Note that Lloyd’s Market Bulletin Y4535 on master policies and group schemes dated 30 November 2011 remains in force and reference should be made to the Lloyd’s requirements in Appendix 1 of that bulletin.)
- The laws that specifically apply to the purchase of insurance by the insured in respect of the activities to be covered or the sale of insurance to that insured for such activities. Such laws may be in a number of sources of law, e.g., international agreements, bi-lateral or multi-lateral treaties, national laws and regulations and state/provincial laws and regulations. Each source of law will need to be reviewed.
- Whether any privileges and immunities that apply to the insured extend to the purchase of insurance by the insured or the sale of insurance to that insured.
Lloyd’s has become aware of a number of misconceptions that have arisen when it comes to providing insurance to international or governmental organisations. It is important that managing agents understand the nature of the organisations they are insuring in order to ensure they are fully compliant in the way that they write these risks. Set out below are a number of the common misconceptions that can arise.
‘If an international organisation has special privileges and immunities in law, a policy for that insured can be written on a non-admitted basis.’
Where an international organisation has special privileges and immunities in law, it does not necessarily mean that the organisation is permitted to purchase non-admitted insurance or that non-admitted insurers are allowed to sell insurance to the organisation. It is important to determine whether any special privileges and immunities that apply to the insured also apply to the purchase or sale of insurance in respect of the activities of the insured that are proposed to be covered.
‘If an international organisation is subject to an international agreement or a bi-lateral or multi-lateral treaty, a policy for that insured can be written on a non-admitted basis.’
The existence of an international agreement or treaty about the insured does not necessarily mean that a non-admitted insurer can write a contract for the insured on a non-admitted basis. Many international agreements concerning international organisations and governmental organisations were made in order to protect national security and facilitate co-operation between sovereign states. They were not written with the purchase or sale of insurance in mind and so they may be silent on this point.
‘International agreements and bi-lateral or multi-lateral treaties regarding international organisations are implemented in the same way by every sovereign state that is a signatory to the agreement or treaty.’
The way in which an agreement or treaty is ratified or implemented at national level may vary between sovereign states and so it is important to check the text of the national law as well as the original agreement or treaty.
‘International organisations and governmental organisations are exempt from having to comply with the insurance laws of the territory they are located in and operate in, so their insurers do not have to comply with those laws either.’
This is not necessarily the case. The local laws of the relevant territories should be reviewed in order to identify whether the organisation and/or their insurer has any such exemption.
‘An embassy or foreign diplomatic mission is only subject to the laws of the territory of its home government (the entering state) and not the laws of the territory in which is located (the receiving state).’
The Vienna Convention on Diplomatic Relations 1961 affords a number of privileges and protections to an entering state. However, there is no provision that indicates that the embassy is only subject to the laws of the entering state and therefore it may be subject to certain laws of the receiving state as well. Also, just because a receiving state has jurisdiction over an embassy or foreign diplomatic mission, it does not mean that it will exercise the powers it has.
‘The land on which an embassy or foreign diplomatic mission stands is the sovereign soil of its home government (the entering state).’
The Vienna Convention on Diplomatic Relations 1961 does not give the entering state ownership or complete jurisdiction over the land on which its embassy or foreign diplomatic mission stands.
Action required by managing agents
It is essential that managing agents conduct thorough pre-bind regulatory due diligence for insureds that are international organisations or governmental organisations in order to ensure compliance with Lloyd’s Minimum Standards on Regulatory Standards. Failure to do so may present a number of risks to the Lloyd’s market, which include but are not limited to:
- The failure to identify correct location(s) of risk for regulatory and tax purposes. This may lead to delays in premium processing, invalid insurance contracts and inaccurate regulatory reporting and funding.
- An unlicensed placement. This may be in breach of local legislation and result in a fine or criminal proceeding against an insured, broker or underwriter involved in the placement.
- Damage to Lloyd’s reputation.
- Potential loss or restriction of a trading licence.
Due to the regulatory complexities regarding international organisations and governmental organisations, the identification of the risk location and the determination of whether Lloyd’s underwriters are permitted to write the risk should be assessed based on the unique circumstances of each insured. Lloyd’s regulatory advice tools, the Risk Locator Tool and Crystal, provide guidance based on the definition of risk location in local law and the trading rights of Lloyd’s underwriters. However, reliance on these tools alone is likely to be insufficient regulatory due diligence for these types of insured. For this reason, the use of the Risk Locator Tool and Crystal by underwriters must be supplemented by discussions with the managing agent’s compliance department, who should consider taking independent legal advice from a lawyer with appropriate expertise in this area before deciding whether cover should be provided to the organisation.
If you have any further questions, please contact the LITA.