-Jessica Xie, Hylant Group

As U.S. investors continue to increase their exposure in China, many are struggling to effectively reduce and control their Asian risk. Too many American companies are ignoring the potential effects of a political system, economy and culture that differ dramatically from anything in the west.

The issue will continue to accelerate. Recent economic news from China is staggering: 2005 GDP growth was just reported at 9.8 percent, following an average annual growth rate of more than 7 percent since 1980. Foreign investment reached new highs for the past two consecutive years at more than $60 billion. At this rate, China will double its GDP by 2020.

This growth has allowed the Chinese to look beyond the role of manufacturing outpost to the west, and to the world as its new market. Last month, the first ever Chinese-made car debuted at the Detroit Auto Show. Economists predict it will take Chinese automakers half the time of the Koreans to build U.S. market share.

To U.S. companies, though, the question remains: how to take advantage of China's booming consumer market, inexpensive labor and favorable investment policies without putting their necks on the line. To start, some background is needed:

• Learn how government authorities work and what customs and business practices pertain to specific regions.
  
  
• Understand the laws and regulations that affect your financial interests. For example, a 2004 work injury insurance law imposes certain financial responsibilities on employers, making workers' compensation coverage compulsory. Regulatory requirements also apply to auto insurance, product liability and others.
  
  
• Define your insurance and risk-management needs.
  
  
• Develop insurance and risk-management plans that meet your needs as well as local regulatory requirements.
  
  
• Execute the plans thoroughly. If insurance is needed, familiarity and relationships with local and international underwriters, who offer coverage in China, is a must.
  

To accomplish these goals, find the right brokers who speak the language, understand the culture and have the knowledge of local regulatory requirements, insurance and risk-management products of their providers.

As a Chinese national, who has in-depth training and experience in insurance and international business in both China and the U.S., I am very passionate about helping our clients fulfill these tasks and solve other insurance and risk-management problems in China. More importantly, I am not alone. The Hylant Group and its Large Account Practice team stand behind me and are glad to assist in any international issue that arises. For more information on how to protect your financial interests in China and what we can do to help, please feel free to contact me or stay tuned in future issues.

Jessica.Xie@hylant.com

Cleveland, Ohio - Hylant Group, the nation's seventh largest privately held commercial insurance brokerage, recently launched a dedicated Large Account Practice and has welcomed Marathon Oil Company to its list of significant clients. The new practice is designed to enhance and expand large account services already provided to major corporate clients.

"We believe that Hylant Group is better positioned than most national brokers to serve the unique needs of large accounts nationwide," said Hylant chairman and CEO, Pat Hylant. "With deeper resources, proven professionals and the flexibility of a privately held firm, it only makes sense that we retool our organization to build market share by better serving this important segment."

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-Jim Lash, Hylant Group

Once a policy that rarely experienced claims, fiduciary liability insurance is quickly becoming the next "deep pocket" for plaintiff's attorneys, and the situation could worsen with Pension Reform legislation anticipated in the near future.

The fiduciary liability policy resulted from the enactment of the Employee Retirement Income Security Act of 1974, which created new liabilities for employers and plan fiduciaries. Today, fiduciary liability policies are typically purchased as part of the executive protection package, along with D&O liability, outside directorship liability and employment practices liability coverage.

Before the 1990s, fiduciary claims were typically small and mostly involved administrative errors or omissions in managing employee benefit plans. But over the past several years, the risk dynamics have changed and risk managers are taking notice. Some of the changes that have affected fiduciary liability coverage include:

Increased healthcare costs - Rising costs have caused many companies to change their retiree benefits creating a significant exposure due to improper notification to plan participants.

Increased cost and exposure associated with defined benefit plans - With mounting pressure to meet proper funding levels and pension reform on the horizon, many employers are considering freezing existing plans, converting them to cash balance plans or some combination of the two. As a result of increasing costs and legal exposures, several larger companies, including IBM, Hewlett-Packard and Lockheed Martin, have decided to freeze or close their defined benefit pension plans. The trend will likely continue if Pension Reform legislation is signed into law. The bill that recently passed the U.S. Senate would require premium increases to the Pension Benefit Guarantee Corp. from $19 per participant to $30 for single employer plans and $2.60 to $8 for multi-employer plans.

Increased costs and exposures of ESOPS and 401 (k) plans - Employee Stock Purchase Plans have steadily increased since the 1980s, and there continues to be a trend for companies to include their own stock in employee 401 (k) plans. As a result, the severity of ERISA "tag-along" claims that can arise from securities class action filings has insurers reaching for new ways to address this exposure within the fiduciary liability policy. Public companies with employer stock in plans can expect to see continued pricing increases and possible coverage changes.

New legislation and regulatory issues - Changes in the U.S. and abroad, such as HIPAA, voluntary compliance and settlement programs, the English Pension Scheme Act and English Pensions Act create additional fiduciary exposures.

Healthcare benefit provider selection - The selection of healthcare benefit providers creates new contingent liability toward employers.

Whether publicly traded, private or non-profit, a well-structured fiduciary liability policy and solid loss prevention guidelines are critical if a company administers, owns or manages any employee benefit plan.

Jim.Lash@hylant.com