Getting a Handle on Workers’ Camp Abroad
Barbara A. Morris
At first blush, the issues surrounding workers’ compensation outside the U.S. seem simple: coverage follows employees around the world. Local laws, however, can make managing this exposure complex.
A first glance, the issues surrounding workers’ compensation for a company’s global operations appear simple.
Workers’ compensation coverage, say experts, generally follow the American worker to locations outside U.S. borders, while indigenous employees hired by a U.S. firm with a facility abroad, are likewise “covered” by whatever benefits the local government dictates.
Yet experts caution that this simplistic approach to a global company’s workers’ compensation strategy becomes increasingly complex upon closer examination, compelling the risk manager to review the issue with a more discerning eye.
“A big part of the issue is obtaining local knowledge,” says Richard S. Betterley, president of Betterley Risk Consultants, a Sterling, Mass.-based risk management consulting company. “Country by country the rules are different. Whether you buy it, or rent it, it’s very important to have local knowledge,” Betterley advises.
For example, John Merrigan, director, insurance risk management solutions practice at PricewaterhouseCoopers, in New York, points out that some foreign countries allow workers to sue their employer if they believe the company’s negligence played a part in their injury.
U.S. employers operating in such jurisdictions, he says, would be well advised to obtain employer’s liability insurance to address this exposure. In some countries where the workers’ compensation benefit is extremely low, local employers routinely acquire additional coverage on behalf of their employees to fill in the gap. The U.S. company operating in these environments, continues Merrigan, would also be well advised to abide by this practice or risk alienating an entire indigenous work force.
“Workers’ compensation systems vary significantly by country,” says Merrigan, who stresses that knowledge of the environment must precede the risk manager’s efforts to work within it. Adds Betterley: “Many governments have a very heavy regulatory hand…you need to know the local market.”
Regulation, Tax Issues
One of the hard realities risk managers often face as they attempt to gain an understanding of the foreign workers’ comp environment is that they may actually have little control over it.
For example, Betterley points out that U.S. companies, obligated to pay taxes or other types of levies to support what are generally government-funded and regulated benefits systems abroad, lose a great deal of their ability to control these up front costs. This is contrary to the experience of the risk manager addressing workers’ comp costs domestically, which can sometimes be shaved through a number of strategies, including the adoption of aggressive safety measures, the assumption of higher deductibles, or implementation of a self-insurance plan.
Additionally, control over the administration of a workers’ comp claim can also fall largely out of the risk manager’s hands.
According to Merrigan, many governments strictly regulate the procedures that follow a workplace injury and that govern how, when, and if the worker returns to the place of employment. A strong medical cost management and return-to-work program practiced by a U.S. company domestically may therefore not be at all applicable abroad.
Merrigan also points out that in many countries, the cost of funding workers’ comp–or its equivalent–is determined primarily by the industry under which the employer is categorized, with no adjustments made to reflect the individual company’s loss experience. Without this financial incentive to reduce loss costs, the risk manager’s efforts to institute the U.S. company’s medical and claims management practices abroad become even more difficult, Merrigan believes.
Jack Fitzsimmons, senior vice president in the San Francisco-based risk consulting unit of Marsh, a leading risk and insurance services firm, identifies several other reasons why disability management models used in the United States are not necessarily exportable abroad. These include: “substantial systemic disincentives to return to work such as high wage replacement rates; ease of access to disability benefits; cultural practices that encourage taking time off; lack of employer control of medical management; and union resistance.”
Fitzsimmons also points out that in regions where labor is inexpensive, replacing the injured or ill worker “has long been a routine business practice and there has been scant attention paid to the rights of individuals with disabilities.”
Perhaps just as potentially frustrating to the risk manager here, continues Betterley, are the difficulties often encountered when attempting to communicate and enforce workplace safety rules from a distance. Some foreign-based locations may not have the technology to duplicate U.S. safety standards.
Or they may have a highly unionized workplace environment, that while aggressively promoting local safety standards, may be unreceptive to the safety requirements of the U.S. company. Compounding the problem is that the risk manager here may not have a counterpart abroad with whom to address these and other workers’ comp-related issues.
Yet the catch-22 to this dilemma, Betterley points out, is that a disaster at a U.S.-owned company abroad that injures or kills workers can exert a devastating impact on the company’s reputation, despite its best efforts to have achieved maximum safety for its employees. For as Betterley observes: “A bad reputation earned in one country will travel around quickly.”
This same dilemma also arises when the U.S. company develops vendor relationships with foreign business entities, even though there is no U.S. ownership or control over that company’s operations. According to Jim McGee, president of Atlanta-based Crawford & Co.’s U.S. operations, most of the larger, Fortune 500 companies have developed strict rules governing their vendor relationships with foreign entities, which also address safety issues.
Yet he concedes that some workplace safety measures adopted by U.S. companies have been driven more by past litigation and therefore elicit resistance from foreign businesses “who don’t regard them as a reasonable cost of doing business.”
While McGee stresses that most U.S. companies have a policy to provide high safety standards wherever domiciled, the challenge lies in recognizing that workplace environments will differ in different countries and that safety abroad can’t be micro-managed from the corporate headquarters somewhere on Main Street, USA.
Logistics of Medical Care
David E. McGurn, president of specialty marketing and international operations at the Itasca, Ill.-based property/casualty insurance brokerage Arthur J. Gallagher, identifies yet another, and sometimes overlooked workers’ comp-related exposure that is distinctly linked to a company’s oversees operations.
Specifically, McGurn points to the often-difficult logistical and financial issues that arise when an American worker becomes ill or is injured abroad and requires repatriation back to the United States. The risk manager, advises McGurn, needs to be certain that U.S. employees, whether working at the foreign-based location for a day or a year, have immediate access to quality medical providers for emergency care.
Additionally, if the injured or ill employee prefers to be treated longer-term at home, which experts observe is often the case, the logistics of bringing that person safely back to the United States for medical care must be in place, before the emergency occurs.
According to McGurn, repatriation coverage will address the expenses associated with this latter scenario, although he cautions that it is generally not part and parcel of the standard workers’ comp policy but must be acquired separately.
Akin to this exposure are the medical expenses incurred by the employee who is injured or who becomes ill while working abroad.
Pamela J. Ritz, president of Specialty Risk Management Inc., an Austin, Texas-based risk management consulting company, reports that growing numbers of companies are attempting to address their international workers’ compensation exposures before the employee ever leaves U.S. borders.
These companies are employing preventive strategies such as orientation sessions educating employees about their foreign-based workplace environment, safety standards and regulations; the administration of inoculations to protect U.S. workers against locally prevalent disease; and the dissemination of medical self-treatment packages containing antibiotics and other drugs not readily available in the foreign location. Yet as the old adage goes…accidents will happen. When they do, additional coverage can be a key risk management tool, Ritz believes.
Ritz strongly advises her global clients to obtain international health insurance and travel accident insurance for employees traveling abroad. The former, she explains, is coverage generally recognized throughout the world, thereby eliminating the “who pays” uncertainty experienced by foreign medical providers compelled to submit a bill to an unfamiliar insurer located somewhere in the United States.
And while Ritz concedes that such coverage may overlay the medical component of a workers’ comp policy, she strongly believes redundancy is a small price to pay for eliminating a scenario in which foreign medical providers and U.S. insurance companies are bickering across oceans, with the negative fallout of the unsettled claim often falling on the injured or ill employee.
Equally important, continues Ritz, is travel accident insurance, which comprises a death, interrupted wage, and medical component. This coverage, she explains, has also successfully been used to fill in the gaps on the lost wage component of a workers’ compensation benefit, which can be particularly meaningful for higher compensated employees who are often those chosen to travel or work abroad on behalf of a company.
The bottom line, observe experts, is that a focus on accident and illness prevention, coupled with the acquisition of additional insurance products to fill in any coverage gaps, may be the most effective strategy currently available to the risk manager wrestling with workers’ comp-related issues abroad.
Fitzsimmons also maintains that the risk manager who takes the time to learn about the local area’s culture and who builds alliances will be more successful than the risk manager who attempts to dictate unrealistic workers’ comp policies from a distance.
“The risk manager can’t slap an American model on these foreign locations and expect them to fly,” he says. “Instead, the risk manager should take very small steps, test them, and if they succeed, go forward.”
COPYRIGHT 2001 Axon Group
COPYRIGHT 2001 Gale Group