How is insurance different in the US?
The UK has one of the most established insurance markets in the world, with Lloyds of London arguably at the heart of the global insurance market. In many ways this can be to the advantage of many startups addressing the US market from the UK. It is much harder to source a policy in the US that will apply to foreign entities; whereas in the UK it is possible to find a policy which will cover all foreign subsidiaries.
Health insurance is very different in the US given the lack of a nationalised health service. As a result, it is imperative that you understand the health insurance position of any short-term or long term employees. Health insurance is a standard term in virtually all benefits packages and will typically be administered by a PEO or benefits provider. Additional information on this can be found in our previous blogs on PEOs and Healthcare.
There are also some specific US insurance nuances such as “Joint Names Clauses” and “Additional Named Insured” where a client may look for you to indemnify them for any loss as a result of your product or service and for them to be named on your insurance policy. Terms like this can be fairly common in some industries but if you are working with an insurer who is not familiar with US commercial practices this may be difficult.
Key issues when thinking about insurance
The main consideration is ensuring that you fully understand what is and isn’t covered under your existing policies. In order to avoid any gaps between policies, having a single over-arching policy across multiple territories may provide the most robust approach. This is especially true if your business is in a position where it would need to rely on insurance, as the insurer is likely to scrutinise any limitations of the policy. Any ambiguities around international policies could be exactly what an insurer is looking for to invalidate a claim.
What should you put in place?
- Check to see if the Directors and Officer’s insurance policy (“D&O”) will need extending in scope as it may only cover the UK. There have been some instances of US Courts making rulings against Directors of a company in order to ensure sufficient damages are paid to a plaintiff;
- If you have employees working in the US for extended periods of time, it may be that this falls outside of your existing Employers Liability insurance, and there may be a requirement to take out an Workers Compensation policy which is required in the US under State law;
- If you have employees operating in the US on a short-term or secondment basis, your companies’ travel insurance may not cover them for an extended period of travel. As a result it is advisable to check this in advance. Monthly insurance plans for foreign travellers such as IMG Global are intended to replicate the level of health cover that a full-time employee may receive as part of an employment package;
- It can be worth reviewing the terms and conditions that you will give to US clients in order to make sure this matches with the level of cover you are comfortable giving. In many instances, restricting the level of “consequential loss” is also advisable;
- If you are thinking about launching in the US in the next 12–18 months, it is worth considering that you may need to change insurers in the near future so do not agree to any long term arrangements with your underwriter;
- Whenever there are any material changes in the business such as a change of address or alteration of business activity, you are required to update your insurer or broker as this may otherwise invalidate your protection; and
- From talking to specialists, having a group policy which covers all the international entities is far more robust than having multiple different policies covering specific geographies. There is a risk that otherwise, a claim that may arise could fall between policies.
Where to go next
Thanks to Elaine Lamb from La Playa insurance, who has worked with some of our portfolio companies to put in place the insurance they need when internationalising, and for her help in writing this article.
This blog and those in this series are aimed at helping entrepreneurs learn about the US market, what it takes to start here, and ultimately what it takes to succeed here. Many of the topics (if not all) are complex and it is best to view these blogs as a basic introduction from which you the entrepreneur must triangulate to your own specific set of circumstances — and invariably it will be sensible and appropriate to seek third party professional advice.