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22 APRIL 2020

Understanding the Financial Interest Clause

financial-interest-clause

AIG held a webinar on Financial Interest Clause (FIC), what it is and what its consequences can be, as a part of the series AIG Academy Connected. The event was hosted by Mattias Fritz, Branch Manager AIG Sweden, whith Stephen Morton, Head of Multinational Europe, as theme expert.

Although local policies within a Controlled Master Programs (CMP) is the preferred solution for global insurances, many companies might consider including a FIC in the policy. FIC is a provision within a Master policy that covers the parent company’s financial interest in losses suffered by overseas subsidiaries where a local policy is typically not issued. The financial clause is included to protect the parent company’s balance sheet, and avoids local subsidiaries being covered by an insurer not licensed in the local jurisdiction.

“A financial interest clause is like a tool in the box, and the key to using it right is to understand what exactly it means. The FIC works best in small locations where the potential loss is straightforward, but it does not address compulsory insurance or evidence of local insurance (COI) requirements. It does, however, create potential for more economical purchase of desired limits, coverage terms and conditions as well as a contractual basis for parental indemnity,” says Stephen Morton.

Other aspects to take into consideration, when deciding on whether or not to include a FIC, are  regulatory and tax issues. To understand how, and to learn more about the benefits and implications of FIC, watch the webinar through the link below.