Brazil has long been at the forefront of the clean technology revolution. With an abundance of raw materials and a large potential wind market, Brazil has seen a 19 percent increase in renewable energy capacity over the past five years according to The Pew Charitable Trusts’ 2013 Who’s Winning the Clean Energy Race report. In addition, with $3.1 billion in clean technology investments in 2013, Brazil is home to a growing business environment that many U.S. clean technology companies are keen to capitalize on.
Yet, foreign markets can present new and often unfamiliar business risks. American companies looking to Brazil to source funding, drive supply chains, leverage contract manufacturing and sell their services may be unaware of the new risks that could impact the long-term success or even existence of their business. Advanced knowledge of the business landscape and an up to date business recovery plan are critical to the success of clean tech companies seeking to take advantage of the opportunities in Brazil.
Abide by Local Regulations
The Brazilian insurance industry is a highly regulated and complex market. Monitored by the Conselho Nacional de Seguros Privados (CNSP) and Superintendência de Seguros Privados (SUSEP), all companies seeking insurance protection must purchase policies through a locally licensed (also called admitted) insurance carrier. While recommended but not required in many other countries, companies seeking to do business in Brazil must also work with a licensed local agent to acquire insurance.
Speaking with your U.S. agent or insurance provider is the first step toward meeting the above requirements. Your agent or provider can advise you whether they have licensed agents and providers in Brazil, and they can also discuss the differences between policies offered in the U.S. and Brazil. For instance, U.S. clean technology executives may find that in the event of property loss or damage, standard Brazilian policies typically insure against only “named perils,” as opposed to U.S. policies that offer “all-risk” insurance. Additionally, certain perils, such as theft or burglary, are often only insured up to 10% of the total insured values. These and other “gaps” in a local Brazilian insurance policy may leave companies exposed to significant financial losses, which can negatively impact their bottom line. However, if a clean technology company has a U.S. multinational insurance program with a Difference in Condition (DIC) insurance policy, that program will help “fill” those “gaps.”
Ensure Employee Safety
According to Chubb’s recent Clean Tech Industry Survey, 53 percent of the executives who responded were not concerned about global protection for employees while they are traveling on business. While some companies are willing to take the risk, clean technology businesses with employees traveling to Brazil should be particularly careful. Fifteen of the world’s most dangerous cities are in Brazil, and the country is experiencing its highest homicide rate in almost three and a half decades. Political instability and civil unrest, as seen in Brazil as recently as 2013, can also lead to lawlessness and result in the grounding of airplanes. Failing to educate and protect employees while traveling needlessly increases the risk faced by the company’s most valuable assets.
Proactively managing an employee’s travel risk can dramatically reduce a company’s exposure. Prior to departure, discuss country-specific hazards with employees, limit the number of key employees traveling together on a plane and coordinate an incident response plan that can be activated in the event of an emergency. Additionally, gather all itineraries as to be aware of employees’ locations at all times.
According to the Association for Safe International Road Travel (ASIRT), employees traveling overseas have a 20 to 40 times greater risk of being killed or seriously injured than while working in the U.S. Business travelers also have increased exposure to local endemic diseases.
Despite extensive preparations, unanticipated events can occur at a moment’s notice. U.S. workers compensation policies may not adequately protect employers and employees from unfamiliar international exposures, such as endemic diseases, or provide the services employees need should an injury occur, like medical referrals or in the worst case, emergency evacuations. Clean tech companies may also want to consider a business travel accident policy that includes repatriation insurance to help avoid out-of-pocket costs relating to evacuation travel expenses and accident-related injuries.
Evaluate your Supply Chain
Forty percent of clean technology companies depend on foreign businesses in their supply chain. Despite this, Chubb’s survey indicates that 29 percent of companies don’t have a supply chain disruption plan in place and 59 percent don’t have an up-to-date business recovery plan. Yet, many clean technology companies likely have suppliers in emerging markets, including Brazil.
In Brazil, civil unrest and extreme weather should be a concern for U.S. clean technology executives. For example, a recent 2013 drought in Brazil cost $8 billion in economic losses and is indicative of how such conditions can lead to supply chain disruptions, according to Impact Forecasting’s Annual Global Climate and Catastrophe Report. Another top-of-mind concern should be the poor state of the Brazilian infrastructure– Brazil recently ranked 114 of 148 countries on the quality of their overall infrastructure according to the World Economic Forum’s The Global Competitiveness Report 2013-2014.
While business opportunity in Brazil is ripe, clean technology executives should not underestimate the weaknesses and vulnerabilities in their supply chain. Before selecting a Brazilian supplier, consider whether they have adequate intellectual property protection, if there have been management-employee labor disputes in the past and if they have an incident response plan ready to go to address a disruption in their own supply chain or another unforeseen event. Additionally, a global property and business income insurance policy with a contingent business income feature can assist a company, by providing needed funds to meet ongoing expenses and replace lost revenue in the event of a supply chain breakdown.
Finding Success
No business venture is without risk. The trick is to be prepared. Understanding your local market will help identify potential exposures before they become sizeable losses. In Brazil, adhering to local insurance regulations, safeguarding travelling employees and analyzing your supply chain are necessary first steps to achieving business success. Without implementing risk mitigation best practices, companies could find themselves facing serious financial losses — or worse.
Amy Ingram, a vice president and worldwide clean tech segment manager for the Chubb Group of Insurance Companies, can be reached at [email protected].
Lead image: Ksenia Ragozina via Shutterstock
