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What’s wrong?

H.H. Shah* is CEO of Shah Infrastructure Services (SIS), a Canadian company that builds bridges and airports domestically. SIS has been negotiating contracts to expand outside Canada and build projects in post-war Libya and Egypt. If the negotiations are successful, the company will send engineers, skilled labourers and executives to these areas both for short stays and multi-month terms. Due to instability in these areas, employees face threats like kidnapping and terrorist attacks, among other risks. Shah will soon run a business with high risk exposure. How should he proceed?

*This is a hypothetical scenario. Any resemblance to real persons is coincidental.

Who do you call?

Insurers specializing in corporate risk.

What they say

Kelly Lang:

Shah’s company is one of his biggest assets, so it makes a lot of sense for an advisor to get involved.

It could be cost-prohibitive for a small- or medium-sized company to buy a lot of [the required] coverages. Often, kidnap and ransom insurance can be surprisingly inexpensive if you’re managing your situation well. [However,] political risk insurance is expensive, depending on how high the risk is in the country. We would encourage any client to have these discussions early on. If they can’t get the insurance they need because it’s cost-prohibitive, they may decide not to do the contract. Whether Shah would pass the cost along to his client is part of a negotiation. It depends whether the client’s services are unique and how significant the cost is relative to the overall project.

Leszek Bialy:

Normally, the contract is decided first, and then the client looks to see if they have proper liability insurance. Nobody goes in securing proper insurance first, because they don’t know if they’ll be able to secure the contract.

Hart Brown:

[To determine insurance needs], we would conduct a political risk assessment of the locations SIS is going to work in. That gives us a sense of short-, medium- and long-term stability issues from a corruption, governmental, security [and] economic standpoint. [We’d ask,] Is it really the right place for this type of investment or are there alternative countries that might be better suited?

Then, we conduct a travel risk assessment. For those early contractual negotiations, we want to make sure SIS understands the security and medical issues, and knows how to react to a problem. What’s the right hospital to go to? How are they going to get in and out [of any safe havens]? How are they going to manage on the ground? Do they need security, and are they going to use local security?

The other coverage would be [for] kidnap and ransom. Are we looking at a single individual who might be detained or captured, or is there a big group?

And, during any trips, we want to make sure SIS has travel risk management, insurance and a few other things. For people going in and out of a country, how are they going to book their travel? Are there multiple approvals needed before someone goes in?

Then, we ask the company itself to enact several contingency plans. We recommend Shah has a pandemic preparedeness plan. We’ve seen the Ebola and Zika cases. Make sure he has a step-by-step plan to deal with medical quarantines.

The other is the journey risk-management plan. This is common in high-risk areas. From the moment employees land, what’s their process: Do they call the local supervisor and check in? Do we get secure transportation? Do they get a curfew or are they staying in a compound or a hotel?

The last one is the crisis management plan. SIS needs to know what to do if there is an uprising, change in government or an attempted coup. [Our] risk services [department] regularly produces risk assessments [to insured clients].

Each country has its own issues with cyber [attacks]. When we’re talking to people going into these locations, we ask how they manage their personal devices [and] corporate devices. How do they manage the information flow, both from a hacking perspective as well as from an economic espionage one if there are trade secrets? We’ll walk through all those initial assessments prior to engaging in business activity. This would be part of what we call hostile environment training.

Leszek Bialy:

Shah’s broker may ask what experience he has in dealing with a foreign jurisdiction. If he has none, is he partnering with local expertise? Shah may not be familiar with every component of what he’s agreed to via the contract if he hasn’t used a local lawyer within Egypt or Libya.

There may be business culture and relationships that Shah may not be aware of and could benefit from if he partners with a local contractor. Maybe bribes are commonplace in getting projects completed. I’m not suggesting Shah participate, but he should be aware of such practices.

The broker may ask what type of security measures Shah has arranged. In some Middle Eastern and African countries, it’s not uncommon for armed guards to provide security for employees and property during the course of construction.

Shah is looking at sending his team into these foreign jurisdictions. There may be employees who refuse to or can’t go. He wants to protect his investment in his employees [who] are provided the protection of the provincial workers’ compensation. Shah would have to confirm if those benefits would continue once employees are working outside Canada.

by Allan Tong, a Toronto-based financial journalist.

Originally published in Advisor's Edge

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