What is a risk location?
Risk location(s) determine the territory or territories whose laws, regulations and tax rules apply to an insurance contract. The Risk Locator Tool (RLT) was built for Lloyd's market participants and houses thousands of risk location rules and triggers with the aim to assist in determining risk location(s). The general principles set out in the RLT and guidance provided on this page should be used in conjunction with country specific information on Crystal.
Why is it important to identify the risk location?
Failure to identify the correct territories for regulatory and tax purposes may lead to:
- delays in premium processing
- invalid insurance contracts
- inaccurate regulatory reporting and funding
- incorrect tax returns and tax payments
- insured’s, intermediaries or underwriters subjected to fines
- damage to Lloyd’s international reputation
All parties in the placement chain should comply with regulatory and tax obligations
Are the territories for regulation and tax always the same?
No. It is possible for the territories of regulation and tax for a single contract to be different because they derive from different rules.
For instance, in the EEA the regulatory risk location for moveable property is the territory where the insured is resident but the tax risk location is where the moveable property is normally situated.
If a Canadian resident insures property outside Canada, this creates a risk location in Canada for regulatory purposes but not for tax.
Can there be more than one territory for regulation and tax?
Yes. There are several reasons why more than one territory’s laws, regulations and tax rules may apply to a contract, including:
- contradictory and overlapping regulatory and tax rules
- multiple risks insured
- multiple insureds
- involvement of intermediaries
If the regulatory rules of more than one territory apply with contradictory effect, a common sense approach is necessary and the underwriter should ensure arrangements provide appropriate protection to the insured.
If the contract is subject to more than one’s tax regime then taxes should be paid in accordance with each territory’s rules.
When should premium be allocated?
It is necessary to allocate premium in relation to global contracts where multiple risks are located in more than one territory.
Please use the Risk locator tool to identify the country(s) of risk before allocating premiums. Allocating premium ensures that business is correctly reported to regulatory authorities and taxes and other fiscal charges are paid correctly.
It is important that the apportionment methodology used to allocate premium is evidenced inthe documentation as regulators and tax authorities may request to see and potentially question the method used.
Methods of premium apportionment
There are no specific rules covering premium apportionment. The method used for any particular contract should be justifiable and documented.
Common apportionment methodologies used to allocate premium include:
- Staff number employed at different locations for insurances linked to employees, such as directors and officer’s liability, employers’ liability or corporate accident and health risks.
- The value of property at different locations for property or stock throughput risks.
- Turnover in relation to product liability risks.
- Number of journeys or value of goods for goods in transit risks.
- The number of or value of vehicles for commercial fleet risks.
- The number of flight movements / landing and takeoffs or value of hull for commercial aircraft risks.
Underwriters should adopt a common sense approach to premium allocation and apportionment. Determining premium is in principle a commercial judgment. Consequently if an underwriter decides not to take into account a minor exposure in a particular country, as to do so would not be economic, it is reasonable that no premium is allocated to that country. However the underwriter must be in a position to justify why they have not charged a premium for a particular risk.
Further guidance on Crystal
The Risk Location Guidance should be used in conjunction with the territory specific risk location information on Crystal.
Step 1 - select the relevant territory
Step 2 - select ‘Pre-placement considerations’ category
Step 3 - select ‘Definition of risk location’ sub category
Step 4 - click on ‘Create a tailored search’ to view the information