Insurance pitfalls facing multinationals entering the U.S. market

As multinational organizations enter or scale within the U.S. market, many underestimate just how different the American insurance and risk environment can be. From tort liability and cybersecurity to workers’ compensation, global insurance alignment, and employee benefits, missteps are common—and often expensive. The following five areas represent frequent pitfalls multinational companies encounter, and where early planning and local expertise can make a meaningful difference.

1. Underestimating the complexity and cost of the U.S. tort liability system

The U.S. legal system is among the most litigious in the world, and multinationals are often unprepared for the speed at which disputes escalate into costly litigation. Understanding the exposure before entering the market is essential.

Exposure and description

• Slow and expensive legal actions: Legal proceedings in the U.S. can be lengthy and costly, significantly contributing to high liability insurance costs.
• Employment-related claims: Unlike many countries where issues such as discrimination and harassment may be resolved through arbitration or labor boards, in the U.S., these claims in the U.S. frequently result in litigation—typically addressed under an Employment Practices Liability (EPLI) policy.
• Rising claims volume: Employment-related claims are increasing in both frequency and severity, with California presenting a particularly challenging environment.
• Industry-wide impact: These claims affect all industries.  As a best practice, even when a global EPL policy is already in place, securing local coverage is strongly advisable. Doing so ensures access to locally knowledgeable legal counsel familiar with state-specific regulations, helping to streamline the claims process.

2. Overlooking the nuances of U.S. cybersecurity threats and insurance frameworks

Unlike many regions with unified data protection frameworks, the U.S. operates under a fragmented, state-by-state regulatory system that creates significant compliance complexity. A global cyber policy is rarely sufficient on its own.

U.S. state data privacy legislation tracker

Diverse regulatory landscape: The U.S. comprises 50 states, each with its own cybersecurity regulations, such as New York’s Department of Financial Services Standard and California’s Consumer Protection Act. A global insurance program may not adequately cover these local requirements.

Higher incident response costs: The costs associated with responding to cybersecurity incidents in the U.S. often exceed those in Europe and Asia, driven largely by the complexity of the domestic liability system.

Effective crisis management: In the event of an incident, relying on resources from an overseas policy can create confusion and hinder effective incident management, particularly when local systems are inaccessible, time zone differences complicate communications, or language barriers slow the response.

3. Navigating the complexity of U.S. workers’ compensation

Workers’ compensation in the U.S. is not a single, standardized system. It’s 50 separate regulatory environments, each with its own rules, rates, and classifications. The differences between states can have a material impact on cost and compliance.

U.S. Workers’ compensation: key state considerations

State-by-state variability: While the purpose of workers’ compensation is consistent across the country, employee classification and premium rates vary significantly by state, creating substantial cost differences for employees performing similar roles in different locations.

Monopolistic states: In most states, employers must purchase a private workers’ compensation policy. However, Ohio, Washington, North Dakota, and Wyoming are monopolistic states, meaning coverage must be purchased exclusively through the state fund; private insurers are not permitted.

Experience rating and premium adjustments: An employer’s rates are adjusted up or down based on their three-year loss history, which can result in significant premium variation between companies operating in the same industry.

Payroll audits and premium true ups: Policies are subject to annual audit based on actual payroll figures. If an employer’s estimated payrolls were understated at inception, significant additional premiums may be owed at audit.

Subcontractor Liability: All subcontractors are required to carry their own workers’ compensation policy. If a subcontractor does not have coverage at the time of a claim, the contracting employer’s policy will respond—an exposure that is often overlooked until it is too late.

4. Assuming a global insurance program provides adequate U.S. coverage

One of the most common, and costly, assumptions multinationals make is that their existing global program will transfer seamlessly to U.S. operations. In practice, critical gaps in coverage, format, and legal protection are the norm, not the exception.

Certificate requirements are often the first point of friction. Most U.S. contract holders require certificates of insurance to be issued in ACORD 25 format, and evidence of coverage presented in any other format may not be accepted—creating potential compliance and contractual issues.

Employment practices liability (EPL) is another area where global policies frequently fall short. Employment-related claims are highly nuanced and vary significantly by state, county, and city. A global EPL policy may not provide locally knowledgeable legal counsel, and it often responds on a reimbursement basis rather than advancing defense costs—a meaningful cash-flow disadvantage in the U.S. litigation environment.

Data privacy presents a similar challenge. Given the patchwork of state-level privacy laws across the U.S., a global cyber program may not be structured to respond to the specific regulatory requirements of individual states, particularly when it comes to fines, penalties, and mandatory notification obligations. Without coverage tailored to this complexity, multinationals can find themselves exposed at precisely the moments they need protection most.

5. Neglecting to investigate U.S. health and benefits insurance programs

Healthcare is unlike any other line of insurance a multinational will encounter in the U.S. It’s expensive, highly regulated at the state level, and deeply tied to an employer’s ability to attract and retain talent.

Core challenges and dynamics

• Complex healthcare system: For multinationals unfamiliar with the U.S. private healthcare system, navigating it can be daunting. In fact, many Americans find it equally challenging.
• Significant employer costs: Employee benefits often rank as the second or third-largest annual expense after payroll and real estate. Many employees are “fully insured,” facing annual rate increases nearing 10%, which can lead to dissatisfaction among staff.
• Long-term impacts: High annual cost increases combined with low satisfaction rates can erode profit, harm efficiency, and drastically impair the ability to compete for talent.
• Opportunities for improvement: Once a company reaches 100 or more employees, a range of options become available to lower overall costs, maintain annual increases between 0% and 5%, and enhance the quality of benefits offered.

Build a stronger U.S. risk strategy

Expanding into the U.S. presents significant opportunity for multinational firms, but it also introduces a level of insurance complexity that should not be underestimated. The interplay of a highly litigious legal system, state-specific regulatory requirements, evolving cyber risks, intricate workers’ compensation rules, and costly healthcare obligations creates exposures that global programs alone often fail to address. Organizations that proactively evaluate these areas, secure appropriate local coverage, and engage U.S.-based expertise are far better positioned to control costs, maintain compliance, and protect long-term growth in the world’s largest and most demanding market.

The Baldwin Group’s international practice brings together a dedicated team of advisors with the deep expertise needed across every dimension of U.S. insurance risk. From navigating state-specific workers’ compensation requirements to structuring cyber programs that meet local regulatory obligations, our team works alongside multinational clients at every stage of their U.S. journey—from pre-entry planning through ongoing risk management.

We understand that no two market entries look the same. That’s why our approach is built around your business: your industry, your footprint, and your goals. Whether you are establishing your first U.S. presence or scaling an existing operation, The Baldwin Group is equipped to help you move forward with clarity and confidence.