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Insurance is a critical tool for managing risk—when it works. Let the insurance buyer beware, however, that it doesn’t always work equally well everywhere. Coverage problems regularly surprise multinational companies that require property insurance in remote locales around the world. Cynics have compared global property insurance to cell phone service: Depending on where you are, your experience may vary. By a lot.

Worse, bad choices in global insurance coverage may remain hidden until a remote location suffers a fire, flood, hurricane, earthquake, cyberattack, or other catastrophe. Only in such a crisis scenario does the company discover how many strings are attached to the insurer’s promise to pay. The insured business may unexpectedly face not only coverage gaps, but also unanticipated taxes, regulatory scrutiny, delays in claims payments—and, ultimately, extended business interruptions.

These problems can often stem from a conventional global insurance structure called the “controlled master program,” under which a corporate insurance client signs a master contract with an insurer and the insurer arranges coverage for the company in each country where the company operates. Coverage under such a contract may vary from country to country. The result may be a mishmash of conditions and limits in coverage across the company’s different locations—and, potentially, nasty surprises if the company suffers a loss in a remote country.

Time after time, multinationals have found that their local policy for an overseas operation fails to cover their entire loss in a disaster. It’s possible that the primary insurer, which oversees the controlled master program, may activate the master policy to cover the gaps in limits and conditions. Assuming that happens, what’s the problem?

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