Risk Management: Insurance - April 2017
Contracting as a form of work engagement has its many appeals from the contractor’s perspective – flexibility, project based. Many clients use it to manage their headcount and employer related liabilities whilst getting the correct skills to fulfil an interim need.
However, to do it right and seamlessly, there are many areas to address before the processes can run smoothly without nasty surprises. We have touched in past articles (http://innovare-group.com/newsletters/newsletter_april_2016), some of the areas to watch out for: immigration, payroll related costs, taxes, labour law and the protectionist trends.
Here, we would like to highlight a very important aspect of risk management… insurances.
Rather than present an academic description of required insurances (which can be readily found online), we hope to highlight the stumbling blocks in our journey of finding the adequate and relevant cover for the independent contractors and related clients/recruitment agencies.
Harry… on behalf of The Innovare Team
Protecting the Independent Contractor
Personal Accident (PA)
Most jurisdictions are required by law to provide Workers Compensation/Employer’s Liability cover protecting the employee against work related injuries.
However, contractors might not be adequately covered by Workers Compensation, or the benefits might be significantly lower than those in their home country. Contractors can also move between countries regularly, which complicates this. Sometimes personal accident insurance is combined with travel insurance but this is a dangerous practice as their scope can be quite different. Hence, a separate PA cover is necessary on an ongoing basis.
Importantly, one should be careful where the contractor works in a risky location such as offshore, underground or dangerous places as most general PA policies limit or exclude these.
This covers hospitalisation as well as in patient charges. Although it is readily available, many underwriters offer this on an annual basis. This is not too practical for the independent contractor as his assignment comes in various durations. A monthly rolling coverage and charge mirrors the assignment better but tend to be more expensive when annualised. Make certain any medical policy includes a full medical evacuation extension. In a recent case, medical evacuation for a single expatriate chalked up a bill of US $183,000!
Many travel insurance policies omit war and terrorism. This is really dangerous in the possible event of a badly injured expatriate who can’t get urgent medical treatment because this coverage is omitted.
Political uprisings like the ones in the Middle East (“Arab Spring”) required rapid action to bring staff to safety. More recently, political evacuation has emerged as an important requirement which should be included in travel insurance policies.
And while travel policies usually have a small extension for kidnap, this tends to be wholly inadequate. The company should have a comprehensive Kidnap Ransom policy with a crisis management plan developed by senior management to determine how to cope if this happened to the contractor.
Protecting the Client/Sponsor
Most jurisdictions require employers to carry a basic cover to cover injuries whilst on the job. This is mandatory but often inadequate. Hence, the add on to this is the next category on employer’s cover under common law.
Employer’s Liability (Common Law)
This takes the protection a step further for claims beyond what a basic cover can provide. It is an affordable but often omitted protection. This should be arranged on a worldwide basis because litigation can be bought in jurisdictions beyond the place of work; it might be the contractor’s home country or it might be the clients head office location.
This provides protection against third party property and personal injury legal claims as a result of business activities. Litigation can involve both the client and contractor, and often, this might even have been agreed as an additional contractual liability in the indemnity clauses insisted upon by the ultimate end client.
Unfortunately, in addition to the variety of insurances above, there are also exclusions that tend to make some covers practically of limited application. Some examples are:
Limitations to Jurisdiction
Very often, insurance providers tend to be localised and cover some countries better than others. AsiaPacific projects frequently span multiple countries, hence, risks exist if there isn’t in place a worldwide jurisdiction under the liability policies.
Nature of work e.g. onshore vs offshore work; office vs manual work
Most insurers readily cover office and onshore works. However, where manual or offshore works are involved, it becomes difficult to place. This affects sectors like oil & gas, mining, power or even works in the telecommunications sector. The introduction of a small segment of work that is manual in nature, is treated as an exclusion. Hence, the beneficiary might unknowingly be exposed.
Often, a detailed questionnaire is required and this will be presented to the underwriters, who will quote specifically based on the job profile. In the contracting industry, the time taken for this is too lengthy to sustain deal flows.
The exorbitant costs of offshore, manual type of assignments presents a significant hindrance to placements of contractors in these segments. More recently some regional insurers have started imposing a ‘headcount’ limit or maximum number of people off shore at any one time as well as a maximum number of people on any one offshore installation. This creates unnecessary exposure.
A Learning Curve
Five years back, when Innovare initiated our foray into the mining, O&G industries, we were successful in getting effective covers for office based positions.
Unfortunately, we were unable to economically fulfil the many demands for manual type assignments. We were posed with numerous questions from the underwriters and by the time the quotes came in with the extra high loading (up to 15% of salaries), it was impossible to close the deal.
Consolidating the Insurance Proposition
In mid 2016, Innovare teamed up with specialists insurance brokers AIS. With a track record of multinational clients, particularly in the difficult manual type coverages, a comprehensive regional package was put together that would benefit our contractors and agencies/clients alike. As a result, we managed to slash costs of insurance as well as obtained covers for challenging manual risks at commercially acceptable prices almost instantaneously. We are pleased to be able to pass on these savings to enable more cost effective and adequate coverage of contactors operating in the region and beyond.
Should you need assistance in Asia Pacific, we would be pleased to hear from you.
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