How brokers insure complex global risks in compliance with legal requirements – with expertise and technology by Finlex


The ongoing internationalization of companies, centralized IT structures and increasing cyber threats present more and more challenges for brokers when setting up suitable insurance solutions for their clients. Especially for multinational companies, a pure local cyber cover is often no longer sufficient. International insurance programs and so–called Financial Interest Covers (FInC) gain massively in importance. 
As an established expert and wholesaler of cyber and financial lines insurance with more than 10 years of experience, Finlex GmbH assists brokers with solutions to exactly these challenges – with deep expertise, specialized teams and a digital platform which can transparently and efficiently map those complex processes. 


Basics of Cyber insurance

Cyber insurance protects clients from the consequences of cyber crime but also against further impairments of IT systems. Events triggering coverage are especially:

  • Data violation
  • Network security breach
  • Cyber extortion
  • Operating errors
  • Technical problems (optional)
  • Unavailability of external services (optional)
  • Cybercrime (optional)

The following costs are insured: 

Own costs: 

  • Crisis counselors and loss prevention/mitigation costs
  • Attorney fees,
  • Costs for the prevention and mitigation of (impending) damage to reputation,
  • Loss assessment costs,
  • Costs of inspection and security counseling as well as system improvement costs,
  • Information and notification costs following data protection incidents.

Own losses: 

  • Disposal and restoration costs, e.g. costs for IT service providers and own staff for resetting the systems,
  • Business interruption claims, e.g. lost profits and fixed costs additional costs.

Third–party claims:

  • Review of and defense against liability claims and compensation in case of a claim, e.g. following data violation incidents,
  • as well as comprehensive insurance cover for contractual liabilities, especially waivers of liability obligations towards external service providers.

International Insurance Programs: Unified coverage with local compliance


An international insurance program aims at consistently protecting corporations from cyber risks across several countries and at the same time complying with local regulatory requirements. Typically, such a program consists of:

  • A Master policy in the home country of the parent company for the central coordination of local policies in the subsidiary countries,
  • as well as a Difference in Conditions/Difference in Limits (DIC/DIL) coverage, which closes potential gaps in coverage between the Master and local policies. 

In contrast to traditional excess insurance solutions, DIC/DIL solutions have a decisive advantage: In the event of a claim, the sums insured do not take effect one after the other, but simultaneously.

FInC: A solution for non–admitted countries
Not every country permits local placements or DIC/DIL structures. In so–called “non–admitted countries”, insurance protection can often only be provided by Financial Interest Covers. 

This coverage works as follows: Not the foreign subsidiary itself is insured but the financial interest of the parent company. The losses are recorded in the parent company’s balance sheet, as the foreign subsidiary generates less revenue following a cyber incident. This concept offers legally compliant insurance coverage where traditional solutions fall short.

Local policies or FInC? Key criteria for brokers
What type of solution is appropriate heavily depends on the individual risk and country profile of the client. Key decision criteria include:

  • Location of the Cyber risk 
    The more the IT systems, security and claims management are centrally coordinated by the parent company, the more this speaks in favor of a Financial Interest Cover. 
    In contrast, self–sufficient, locally operated IT structures call for local policies, embedded in an international insurance program. 
  • Claims handling history
    If claims have been managed centrally up to now, without relevant local effort or local claims service, the need for local policies is often lower.

  • Networking and Licensing of insurers
    International insurance companies like AIG, AXA XL, Chubb, HDI Global, AGCS or Zurich can often rely on their own networks to install local solutions. Other insurance companies exclusively place financial interest covers in non–admitted countries. 

    Important: The beforementioned criteria are general criteria – a thorough examination of each individual case is crucial.

Tax implications of Financial Interest Covers

Insurance tax is an often–underestimated issue. It heavily depends on the country’s classification and the local licensing of the insurance carrier:

  • Countries of the European Economic Area (EEA): Taxation according to local tax rate (Freedom of Services)
  • Third countries with local license: FInC is often inadmissible for legal reasons; Insurance tax is often 0%; payment by the policyholder.
  • Non–admitted countries: Taxation according to tax rate of the parent company (e.g. 19% in Germany).

The exact structure of the policy may vary depending on the insurer –another aspect where specialized advice is crucial.


Finlex’ special concepts: Clarity and structure for international programs

The special concepts of Finlex – if legally permitted – automatically include the insurance of all subsidiaries (partly also sub–subsidiaries). 

  • EEA subsidiaries or subsidiaries in licensed third countries are regularly insured.
  • Subsidiaries in non–admitted countries can either be insured under local policies with DIC/DIL or – if not possible – explicitly integrated via FInC clauses.
  • Insurance–specific particularities (e.g. with ERGO or Hiscox) are taken into account in a transparent manner. 

Claims via Financial Interest Cover: What brokers should know


In case of a claim, the claims handling process – despite the international structure – is still clearly defined: 

  • Central point of contact is always the emergency hotline of the insurer.
  • Subject of the insurance is the financial interest of the parent company, not the foreign subsidiary.
  • Direct local assistance services are not permitted within the framework of Financial Interest Cover.
  • In practice, damage is usually reported by the parent company, as it has IT sovereignty.

 

Conclusion: International Cyber risks need specialist solutions

International Cyber insurance programs and FInCs are complex but indispensable for globally operating companies. For brokers, this means: structured concepts, legal certainty and deep specialist knowledge are key. 


This is exactly what Finlex GmbH can offer you: a combination of technology, expertise, and service. With its dedicated expert teams, more than 100 employees at seven company locations and a digital platform which maps the entire process – from call for tenders (RFPs) to the renewal of the policies: Finlex enables brokers to also confidently insure international cyber risks in a transparent, efficient and legally compliant way – on a digital basis, with personal contact and with a clear added value for everyone. 

Contact:
PhD Sven Erichsen
sven.erichsen@finlex.de