Got an Office or a Subsidiary Abroad? This Is How It Works

Coverage For Every Location

If you want to build up a future-proof company, it is elementary to also think about the topic of risk management and protection through Professional Indemnity Insurance. Especially in times of globalisation, this no longer only involves solutions for a specific country, but there is also a great need for international insurance solutions.

But how can you achieve this if your business no longer consists of just one location, but of several subsidiaries that are also spread all over the world? Depending on whether the location is inside or outside the EU, there are various possibilities.

Insurance Coverage For Subsidiaries Located In The EU

The European internal market offers four fundamental freedoms to ensure free trade. One of these is the so-called Freedom To Provide Services. It allows providers of industrial, commercial, craft and freelance activities free access to the services markets of all member states of the European Union. For insurance brokers within the EU, this means that they can offer insurance contracts and insurance coverage to interested parties - as long as the insurer and broker are licensed or registered in an EU member state.

The situation is very similar with subsidiaries in the EU (Freedom of Establishment). The insurance coverage must also take this into account. So if your company has subsidiaries in different countries of the EU, you can also insure them through your existing Professional Indemnity Insurance. In the case of Professional Indemnity Insurance through exali, this is clearly stipulated in the insurance conditions:

"Insured companies are branches and subsidiaries of the policyholder in the domestic country as well as in the countries of the European Economic Area (EEA) or the United Kingdom of Great Britain and Northern Ireland (UK)."

Subsidiaries in another European Union country are therefore automatically covered by the insurance.

Insurance Coverage For Branches Located Outside The EU

If the registered office of your company is within the EU, but the subsidiary is located outside the EU, for example in Switzerland, the insurance coverage is somewhat different. This is because many non-EU countries do not allow foreign insurance coverage for a local risk. Countries for which international insurance solutions are not legally possible are called non-admitted countries. It is estimated that between 140 and 160 countries are currently classified as non-admitted countries. An insurer from a European country may not simply insure the risks of a branch in these countries. Conversely, a non-European insurer may not insure risks in the EU either.

These so-called prohibition or non-admitted countries outside the EU require that foreign insurers and their policyholders comply with the law applicable there when concluding a contract for a local risk. Accordingly, you would have to take out a local stand-alone policy for your foreign subsidiaries in a prohibited country with a local insurer or locally authorised risk carrier in accordance with the liability and coverage requirements applicable there. In addition to the increased administrative and financial burden, however, there are other disadvantages that such local coverage can entail. For example, you run the risk of exposing your branch to an insufficient level of coverage, as the sums insured and the scope of insurance of a Professional Indemnity Insurance for a company within the EU are often considerably better designed than, for example, for subsidiaries in Brazil, India or China.

To close this gap or avoid local coverage, there is an alternative solution - the FinC clause.

FinC-Clause (Financial Interest Cover)

The FinC clause (Financial Interest Cover) allows international risks of companies to be insured. It insures the financial interest of the holding company in its foreign subsidiaries on the basis of its participation in the foreign subsidiaries or offices. The approach of the FINC clause is to transfer the operational risks of the group's foreign-based subsidiaries into a financial risk of the parent company. This is because a costly damage event of the subsidiary abroad would also have a financial impact on the holding company. As a result of the above-mentioned transfer, only German or European risks are insured by the insurer, whereby the insurance supervision regulations of foreign prohibition states remain unaffected. The FinC clause can therefore act as an alternative to local coverage (so-called "ground-up") or as a supplement to insufficient local coverage.

For a better understanding of the FinC clause, here is a practical example:

Let's assume you run a business in Germany with a subsidiary in Switzerland. In the policy of your Professional Indemnity Insurance for the German registered office of your business, your Swiss subsidiary is named as a co-insured company. In addition, your insurance contract contains the FinC clause. It states that a claim at your Swiss subsidiary - if not covered by a local insurance policy - will be settled via the Professional Indemnity Insurance of the German parent company with the scope of insurance you are familiar with.

Example Formulation of a FinC Clause:

‘Balancing financial interests (FInC)’

If the policyholder holds a stake in a subsidiary with its registered office in a state in which the insurer is not licensed to conduct insurance business, or if the policyholder or a subsidiary maintains a legally dependent production facility or other legally dependent company in such a state, then the subject matter of the insurance coverage in insured events which may not be settled locally due to non-admission is exclusively the interest of the policyholder in obtaining compensation for the economic value of their participation in the respective subsidiary or business reduced as a result of the insured event.

Accordingly, this insurance coverage relates exclusively to the policyholder's loss of assets. In such insured events, the policyholder enjoys insurance coverage to the extent that the value of the participation in the subsidiary or the value of the business decreases as a result of the insured person's breach of duty on which the insured event is based.

This only applies if and to the extent that the insured event is not settled on site solely because of the non-admission.

The insurers compensate the policyholder for the depreciation of the participation or the business. The amount that would have to be reimbursed by the insurer if insurance benefits could be provided on site is deemed to be the depreciation. If the insured event is covered by a local policy, this takes precedence. Payments by the insurer are made in euros and only to the policyholder.’

Insurance Through The Foreign Subsidiary of The Insurer

In our example with Switzerland, we would like to draw your attention to another special feature. Some insurers who offer insurance coverage for companies throughout Europe via the Freedom of Services model also maintain a subsidiary in Switzerland and can offer local coverage under the law applicable there. This also applies to Professional Indemnity Insurance through exali.
In our example with Switzerland, we would like to draw your attention to another special feature. Some insurers who offer insurance coverage for companies throughout Europe via the Freedom of Services model also maintain a subsidiary in Switzerland and can offer local coverage under the law applicable there. This also applies to Professional Indemnity Insurance through exali.
This results in a second alternative solution for our practical example with the subsidiary in Switzerland: The starting point is still the German company with a subsidiary in Switzerland. The German company can be covered by the insurer licensed in Germany while the Swiss subsidiary can be covered separately by the Swiss office of the same insurer. In contrast to the FinC clause (in the contract of the German company), you then have two separate insurance contracts whose premium is essentially calculated according to the turnover of the respective subsidiary. If a damage event occurs, this means: Depending on which company ( main company or subsidiary) caused the damage, the insurer will settle the claim either via the German or the Swiss insurance contract.