David Austin has pulled together a continuing legal education proposal for the International and Immigration Law Section Council entitled, “Pulling no Punches: Effective Representation of Immigrant Survivors of Domestic Violence.” The proposal was developed with the assistance of Mary Meg McCarthy of the National Immigrant Justice Center.
The proposal has been approved by the ISBA Continuing Legal Education Committee for a presentation during the Spring of 2008. We hope to know the date for the program by December. The topics include: “Welcome, Introductions and Orientation to the Training,” “Crossing Borders: Family Law and Immigration Practice Basics,” “Working With Immigrant Survivors of Domestic Violence,” “The Violence Against Women Act: What It Is and How You Can Use It,” “How to Craft the Perfect VAWA Petition: Tips from the Vermont Service Center,” and “Ethical Boundaries for Attorneys Working with Immigrant Survivors of Domestic Violence.”
Cindy Buys, Secretary of the International and Immigration Law Section Council and Associate Professor of Law at Southern Illinois University School of Law, provided, “Putting Employers Between a Rock and a Hard Place with Respect to Verifying Employment Eligibility.”
This issue also include Matthew DeFlorio’s article, “Public-Private Supply Chain Initiatives: The Relationship Between C-TPAT, CSI, and the WCO.” Matt spent ten years in the international transportation arena and has his J.D. from The John Marshall Law School with a certificate in international business and trade law.
Robin Newberger is a Business Economist with the Federal Reserve Bank of Chicago. Her article, “Financial Access and Insurance: A Preliminary Description of Factors that Affect Immigrants” appeared in the May 2007 issue of Profitwise News and Views. It is reprinted with the permission of Robin and the Federal Reserve Bank of Chicago.
Howard Stovall is a frequent contributor to The Globe, concentrating his practice in Middle Eastern commercial law matters. His article is, “Summary of Commercial Agency/Distributorship Law in The United Arab Emirates.”
Thank you to our authors and to David Austin for developing the CLE proposal that was accepted by the ISBA Continuing Legal Education Committee.
Lewis F. Matuszewich
Matuszewich, Kelly & McKeever, LLP
Telephone: (312) 726-8787
Facsimile: (773) 279-8872
E-mail: lfmatuszewich@mkm-law.com
Earlier this year, the Illinois legislature passed and Governor Blagojevich signed into law H.B. 1744, which puts employers in an even more difficult position with respect to verifying their employees’ eligibility to work. H.B. 1744 amends the Illinois Right to Privacy in the Workplace Act to prohibit employers “from enrolling in any Employment Eligibility Verification System, including the Basic Pilot Program, 8 U.S.C. 1324a, . . . until the Social Security Administration (SSA) and the Department of Homeland Security (DHS) databases are able to make a determination on 99 percent of the tentative nonconfirmation notices issued to employers within three days, unless otherwise required by federal law.”
When asked to comment on the proposed law prior to its enactment, the International and Immigration Law Section Council of the ISBA opined that the law would likely be unconstitutional because it would be preempted by federal immigration laws. Apparently, the U.S. Department of Justice agrees. It filed a lawsuit against the State of Illinois in September 2007, alleging that the Illinois law is preempted by federal law. See Complaint of the United States, United States v. Illinois, Civ. Action No. 07-3261 (C.D. Il. Sep. 24, 2007) (“Complaint”).
The relevant federal law, section 8 U.S.C. §1324a of the Immigration and Nationality Act (INA), states that it is unlawful to hire or continue to employ an alien knowing the alien is unauthorized to work. Subsection (b) requires that employers attest that the person is not an unauthorized alien by reviewing certain identification documents. If the employer complies in good faith with these requirements, the employer will not be subject to liability even if it is later determined that the alien is not authorized to work.
In addition, the INA authorizes the President to engage in “demonstration projects” that deviate from this general scheme. The Basic Pilot Program, now known as E-Verify, is one such demonstration program. Under this program, participating employers submit certain documentation regarding new hires to the federal government to confirm the employees’ identity and employment eligibility. The employer receives a response from the verification system as to whether the employee is authorized to work in the United States and whether the employee has presented a valid Social Security number that matches the employee’s name in the SSA’s records. At present, all employers are encouraged to participate in E-Verify, but not all employers are required to do so.
According to the Complaint filed by the U.S. Department of Justice, one of the primary purposes of the program created by 8 U.S.C. § 1324a, is to ascertain the most effective and efficient means for verifying whether an individual is legally authorized to work in the United States. The effectiveness of the program and the federal government’s ability to meaningfully evaluate the program depends upon participation by employers. Any obstacle to the employers’ continued participation in or limitation on enrollment in the program impedes the federal government’s ability to evaluate the program’s effectiveness in enforcing the INA’s employment eligibility requirements. The federal government views the participation of employers in the state of Illinois as particularly important because Illinois has been identified as one of the five states with the highest estimated populations of unauthorized aliens.
The new Illinois law does allow an employer who is required by federal law to participate in the E-Verify Program to do so, but prohibits employers from voluntarily participating. While the Illinois law does not specify what sanctions will apply to an employer who might choose to participate in the federal program, it certainly creates a legal risk for employers that is not good for business. Now an employer must choose between complying with federal law and complying with state law.
Employers who operate in more than one state are placed in a particularly difficult situation. For example, Arizona has taken the exact opposite approach of Illinois by enacting a new employer sanctions law that requires Arizona employers to verify their workers eligibility by using the Basic Pilot or E-Verify Program or face revocation of the employer’s business license. A.R.S. § 13-3706. Because the Illinois law only allows employers to participate in the E-Verify Program if required by federal law, that exemption will not assist an employer who is subject to the Arizona state law. Thus, an employer that operates in both Illinois and Arizona will not be able to comply with both states’ laws.
Proponents of the new Illinois law argue that it is necessary because the databases used by DHS and SSA for the program are not sufficiently up-to-date and accurate. As a result, persons who are authorized to work in the U.S. have been denied jobs or terminated from their employment due to faulty information in the government databases. See Ronald R. Powell, President, Local 881 and UFCW International Vice President, Letter to the Editor, SOUTHERN ILLINOISAN, Oct. 4, 2007, at 4A.
While there are valid concerns about the accuracy of the federal government’s databases, this state-by-state approach to the problem is not the right one to take. Immigration is a national issue that has historically been handled comprehensively at the federal level. Because it touches on U.S. foreign relations, the United States must have a uniform policy nationwide when dealing with other countries and their nationals. It is federal law that determines whether an alien may work in the United States; federal law also should define the documentation and process necessary to verify that employment eligibility. Allowing each state to determine whether to permit employers operating in that state to participate in a federal program or under what conditions the employer may participate has the very real potential to create a patchwork of conflicting regulations and allow states to dictate policies over national issues to the federal government. Accordingly, the U.S. District Court should strike down the new Illinois law as unconstitutional because it is preempted by federal law.
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Cindy G. Buys is an Associate Professor of Law at the Southern Illinois University School of Law where she teaches immigration law and constitutional law Professor Buys also is the Secretary of International and Immigration Law Section Council of the ISBA.
1. Applicable Law
Commercial agencies are primarily governed in the United Arab Emirates (the “UAE”) by Federal Law No. 18 of 1981 as amended, the “Commercial Agency Law.” The UAE Federal Civil Transactions Code and Commercial Transactions Code also contain provisions relevant to commercial agency arrangements. (Under the UAE constitution, federal law supersedes inconsistent emirate law).
2. Definitions
The Commercial Agency Law defines the term “commercial agency” as representation “for distribution, sale, display or provision of any commodity or service,” and therefore is applicable to distributors as well as commercial agents. (For purposes of this summary, the term “commercial agent” generally includes distributors, and the term “commercial agency” generally includes distributorships).
Although franchises and commercial agencies share some common features, we believe that a franchise agreement should not be deemed subject to the provisions of the Commercial Agency Law. However, we are aware of at least one lower court decision in the UAE that has reached the contrary conclusion, i.e., that franchises fall within the definition of “commercial agency.”
3. Qualifications for Commercial Agents
Article 2 of the Commercial Agency Law states that commercial agency business shall be conducted only by UAE nationals, whether natural persons or companies wholly-owned by UAE natural persons. Nonetheless, we are aware of at least a limited number of foreign companies who sell their products in the UAE on the basis of commercial agency agreements with parties other than UAE nationals or companies wholly-owned by UAE nationals, although this is generally contrary to law.
In addition to the UAE nationality requirement, a commercial agent should have a valid and appropriate commercial license in each emirate intended to be within the commercial agent’s territory. The commercial agent should also be registered with the Chamber of Commerce in each relevant emirate.
4. Direct and Exclusive Relationship
Article 4 of the Commercial Agency Law requires a direct relationship between a UAE commercial agent and the foreign manufacturer, without any intervening regional or multi-country sales agent. An exception is made for an authorized exporter or sole distributor of a foreign manufacturer when the latter does not conduct its own marketing.
Article 5 of the Commercial Agency Law provides that a qualified commercial agent will be deemed exclusive in its territory, but allows a foreign company to appoint a separate commercial agent for each emirate or combination of emirates, or one commercial agent for the entire UAE. In practice, it has been possible for a foreign principal to appoint different commercial agents for different “product lines,” or even different brands or types/models of the same general product.
Article 7 of the Commercial Agency Law bolsters the exclusivity requirement by entitling a qualified commercial agent to compensation for all sales made within its territory, regardless of how these sales are made. In this light, Article 23 of the Commercial Agency Law generally prohibits the importation into the UAE of any products covered by a registered commercial agency, except with the approval of the commercial agent or the Ministry of Commerce and Industry.
However, a 2006 amendment to the Commercial Agency Law revised Article 23, taking away the right of a UAE commercial agent to block imports in certain categories of goods specified by UAE cabinet decision(s). One such cabinet decision had already been issued—allowing traders to freely import 14 categories of basic foodstuffs.
5. Mandatory Use of Commercial Agents
For sales to the UAE private sector, there are no general prohibitions or limitations on a foreign company’s use of a local commercial agent.
For non-military sales to the UAE federal or any emirate government, there are no general legal prohibitions on the use of a commercial agent. In fact, some form of local “sponsorship” or commercial agency is often required in connection with sales to the UAE federal and emirate governments. (For example, Abu Dhabi Law No. 7 of 1973 provides that the Ministry of Interior may not purchase goods without going to tender, unless the products are available solely from a duly appointed agent).
6. Restrictions on Use/Payment
Various UAE federal and emirate laws prohibit local government officials and employees from engaging in commercial agency activities, particularly for transactions involving the government department for which the official/employee serves.
For many years, the UAE Armed Forces have had an established policy prohibiting defense contractors from using any sales agent or intermediary in connection with certain UAE military procurement contracts. That policy prohibition in its present form arises from a directive issued by Sheikh Khalifa Bin Zayed Bin Sultan Al-Nahyan as Deputy Supreme Commander of the UAE Armed Forces in the early 1980s (the “Khalifa Directive”).
The UAE Armed Forces have described the Khalifa Directive as applicable to procurement of “military equipment, combat vehicles, weapons of various kinds and their ammunition, battleships, aircraft and all such other electronic equipment and appliances.” However, the UAE Armed Forces would not necessarily be the only UAE customer for procurement of military-type equipment—other UAE customers might include the Ministry of Interior. Therefore, the Khalifa Directive and Standard Clause might not apply to a particular sales contract, depending on the identity of the purchaser.
There are no general prohibitions or limitations on the payment of sales commissions by a foreign company to a UAE commercial agent in connection with UAE private sector sales. Subject to one exception, discussed in the following paragraph, there are no general prohibitions or restrictions on the percentage or amount of commission paid to a commercial agent in the UAE in connection with non-military sales to the UAE federal or any emirate government.
Article 8 of Abu Dhabi Law No. 4 of 1977 imposes ceilings on the amount of commission an agent or intermediary may receive in connection with Abu Dhabi government contracts, ranging from two percent on transactions not exceeding ten million Dirhams, to one percent on transactions equal to or exceeding fifty million Dirhams. In practice, the Abu Dhabi commission limitation is narrowly construed, and a foreign company is probably permitted to pay additional compensation to a commercial agent for any services rendered by the latter which go beyond mere “sponsorship.”
The UAE has not enacted any general foreign exchange control restrictions, and UAE nationals are not subject to any local income tax. Thus, there is no general UAE legal restriction on the place or currency of commission payments.
7. Registration Requirements for Commercial Agents
The Commercial Agency Law requires all local commercial agents to register with the Ministry of Economy and Commerce (the “Ministry”). A number of supporting documents must accompany the application for registration, including a copy of the commercial agency agreement, legalized by the UAE embassy or consulate in the foreign principal’s country and translated into Arabic. If the commercial agent is to conduct commercial agency activity in more than one emirate, the registration application must be submitted to the Ministry’s office in the emirate where the commercial agent’s main commercial establishment is located.
In 2006, the Ministry issued a resolution permitting registration of a commercial agency agreement only if the agreement contains a clause evidencing the parties’ consent to such registration, or the commercial agent attaches a letter from the principal evidencing such consent. This Ministerial resolution seeks to remedy prior instances where a UAE commercial agent registered its agreement without the principal being aware of that registration or the UAE legal implications.
Although the Commercial Agency Law requires all commercial agencies to be registered, in practice many are not. A commercial agent conducting business under an unregistered commercial agency agreement is technically in breach of the Commercial Agency Law. In practice, however, an otherwise qualified commercial agent’s failure to register does not result in prosecution. In addition, the Commercial Agency Law does not impose any direct penalties on a principal who works through a local commercial agent under an unregistered agreement.
The Commercial Agency Law instructs the UAE courts not to hear any claims brought under an unregistered commercial agency. Assuming the foreign principal has carefully structured the arrangement, however, this rule may simply mean that the unregistered commercial agent will not enjoy the “dealer protections” otherwise available under the Commercial Agency Law.
8. Termination or Non-Renewal
The judicial and administrative protections granted to a qualified UAE commercial agent under the Commercial Agency Law are generally considered to reflect local public policy and, as such, may not be waived in advance through provisions in the commercial agency agreement or otherwise.
The UAE Commercial Transactions Law does not provide for any such dealer protections in the case of unregistered commercial agency agreements. In the latter case, the unregistered commercial agent must substantiate its claim for compensation in the event the relationship is terminated—in other words, unlike the rule under the Commercial Agency Law, an unregistered commercial agent does not have a presumptive extra-contractual right to compensation under the Commercial Transactions Law.
(a) Compensation.
Article 8 of the Commercial Agency Law states that “[t]he principal may not terminate the commercial agency contract unless there are valid reasons justifying its termination.” Article 9 of the Commercial Agency Law provides that if termination of the commercial agency results in damage to either of the contractual parties, that party may claim compensation for the damages sustained. (Importantly, as a result of 2006 amendments to the Commercial Agency Law, a foreign principal is no longer liable to pay special compensation upon expiration of a UAE commercial agency).
Although the Commercial Agency Law does not contain guidelines on the compensation payable to the commercial agent in the event of termination, experience has shown that the compensation is generally likely to include (i) either a requirement for a foreign principal to repurchase inventory, or damages to reflect the commercial agent’s outlay for such inventory; (ii) other investments, expenses or costs undertaken by the commercial agent in promoting the principal’s business; and (iii) a multiple of the annual profits from the commercial agency (usually a multiple of between three to five years), as a form of “lost profits” suffered by the commercial agent.
(b) Administrative Protections.
The Commercial Agency Law has historically restricted the circumstances in which the Ministry might de-register a commercial agent and allow the registration of a successor appointed by the principal. As a result of amendments to the Commercial Agency Law in 2006, as well as a Ministerial resolution that same year, the Ministry now has slightly broader permission to de-register a commercial agency, including not only the parties’ mutual agreement to terminate the relationship, or the issuance of a final court judgment cancelling the commercial agency, but also upon expiration of the registration without the parties’ consent to renew, or a letter from the principal stating that it is unwilling to re-new the relationship.
In practice, the Ministry now proceeds more readily than in the past with de-registration of agencies that have expired or that the principal does not wish to renew or to continue. However, the Ministry often proceeds slowly in response to requests for de-registration, and routinely allows the registered commercial agent to submit a statement in opposition to de-registration. It is also clear, at least as a formal matter, that de-registration does not extinguish the right of the commercial agent to claim damages for wrongful termination.
Under Article 23 of the Commercial Agency Law, UAE customs authorities should refuse to clear goods encompassed by a registered commercial agency (for example, attempts to import by a principal’s successor commercial agent), unless upon the agreement of the registered commercial agent or the Ministry. (As mentioned above, the UAE cabinet is authorized to issue exceptions to a commercial agent’s exclusive import rights, and the UAE cabinet has already opened some categories of products to be freely imported).
9. Choice of Foreign Law and Dispute Resolution
UAE law generally will respect the parties’ contractual choice of foreign law to govern their commercial agreement, so long as that foreign law does not conflict with UAE rules of public policy. Thus, the UAE courts would not recognize a choice of foreign law clause in a commercial agency agreement to the extent special ‘dealer protection’ provisions of the Commercial Agency Law are applicable. For example, the UAE courts would not apply a foreign governing law clause if the principal would thereby avoid its obligation to compensate the UAE commercial agent upon termination or non-renewal of the agreement.
In many instances, UAE law would not respect the parties’ contractual choice of a foreign forum to resolve commercial agency disputes. Article 6 of the Commercial Agency Law empowers the UAE courts to resolve disputes arising under a UAE commercial agency agreement, and “no effect shall be given to any agreement contrary hereto.” Based upon this provision, we believe the UAE courts would exercise jurisdiction and apply at least local public policy (such as the ‘dealer protections’ in the Commercial Agency Law) to any UAE commercial agency dispute, regardless of a foreign forum selection clause in the agreement.
Nonetheless, provisions in a UAE commercial agency agreement referring to foreign governing law or foreign dispute resolution forum might be useful for “defensive” purposes, if disputes are litigated outside the UAE (for example, if a UAE commercial agent attempts to enforce a UAE judgment in the courts at the foreign principal’s home jurisdiction). The UAE has acceded to the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the 1958 New York Convention).
10. Boycott Matters
Over the years, foreign companies have faced various problems relating to the UAE’s participation in the Arab boycott of Israel. However, the difficulties faced when entering into a UAE commercial agency agreement have varied from time-to-time. The UAE continues to enforce a primary boycott of Israel, e.g., no goods of Israeli manufacture may be imported into such a boycotting country. A few years ago, however, the UAE (together with a number of other Arab Gulf countries) suspended its secondary and tertiary boycott of Israel.
In general, the commercial agency agreement should include a clause stating that the commercial agent is an independent contractor and does not have authority to act on behalf of the principal in any matter not expressly authorized in the agreement. Such a contractual provision will weaken any assertion that the commercial agent has authority to furnish boycott-related certifications to the local boycott office or otherwise comply with boycott requirements on the principal’s behalf.
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Mr. Stovall is a Chicago-based attorney, devoting his practice exclusively to Middle Eastern commercial law matters. He is also an adjunct professor at The John Marshall Law School, teaching Comparative Commercial Law of the Arab Middle East. He may be reached at Howard@Stovall-law.com. He is a frequent contributor of material to The Globe.
This summary is based on information currently available in our Chicago office, including correspondence with UAE counsel. This summary is intended to highlight selected aspects of UAE commercial agency law, but it is not intended to provide legal advice on any specific question of local law.
Introduction
Providing financial services to immigrants is a growing business for bankers, and a growing area of study for policymakers and researchers. While still an emerging field, most of the attention to financial access thus far has tended to focus on core banking products such as bank account ownership, mortgage loans, and services that immigrants tend to use more often than native-born, such as wire transfers, that banks must market more aggressively than in the past to attract (some) immigrant groups. Insurance is another financial tool that, like accounts and mortgages, helps households accumulate and maintain assets, deal with unexpected financial contingencies, avoid a bad credit rating (a common result, after a medical crisis, among households having inadequate or no health insurance), and otherwise have an opportunity to participate in the financial mainstream. Yet insurance has received comparatively little attention in discussions about immigrants who do not or cannot take full advantage of common financial products and services. As is the case with many other financial products, proportionately fewer immigrants have property/casualty, life or health insurance than the native-born.
This article reports on participation rates by immigrants and examines some factors that influence access to health, property/casualty and life insurance. Although these types of insurance have distinct purposes, the discussion focuses on common barriers. An understanding of the issues impacting immigrants’ decision to purchase insurance may be important for insurers and insurance brokers trying to reach (new) immigrant markets, as well as for consumers and advocates whose mission is to help people build and preserve their assets. Insurers and consumer advocates have for many years (correctly) taken the position that, like core bank products, insurance is essential to financially stable households. Accordingly, it is important to understand factors that limit access to this basic financial product.
Both banks and insurers are interested in immigrant market trends. The number of immigrant households is projected to increase from 35 to 42 million between 2000 and 2020 and will account for approximately one-third of all new households over this period.1 Immigrants are already an important segment of the U.S. automobile market: Hispanics will represent 20 percent of the total used car market by 2010.2 Immigrants are also well-represented among business owners: about 10 percent of immigrants are self-employed versus nine percent of the native-born.3 In addition, the immigrant population is dispersed across the United States, making access to coverage an issue not just for a handful of places or states, but for communities across the country.
The first section of this article presents data from various surveys that quantify the use of automobile, home owner, health, and life insurance among immigrants. The second section discusses factors that affect coverage, first summarizing findings from a handful of (health insurance) studies, and next briefly reviewing various policies and practices in the insurance industry that may also influence access. The main sources of information for this article are national surveys, trade publications, research studies on insurance, and interviews with industry experts.
Coverage Rates for the Foreign- and Native-born
A limited amount of data is available on the private insurance participation rates of immigrants. A few national data sets collect basic information on the ownership of health, life, and home owner insurance among the foreign-born. Table 1 summarizes this information. In the absence of national data on automobile insurance coverage among the foreign-born, Table 1 also includes the results of a local survey (Los Angeles) of foreign-born Hispanics.
Table 1. Private Insurance Coverage
Foreign-born (%) Naturalized citizens (%) Native-born (%)
Auto insurance1 71 n.a. 862
Home-owners insurance3 53 68 74
Health Insurance4 48 56 61
Life Insurance5 37 45 61
1. Tomas Rivera Policy Institute, 2005. Study covers Latinos in Los Angeles. 87% of native-born Latinos have auto insurance. Responses to this question are not contingent on automobile ownership.
2. Insurance Research Council, Press Release June 28, 2006. This percentage is for the entire U.S. population.
3. American Housing Survey, 2005. Contingent upon owning a home, 90 percent of the foreign-born have homeowners insurance, as do 92 percent of naturalized citizens and 94 percent of the native-born.
4. Current Population Survey. March Supplement 2006. Immigrants 18 and older. About a quarter of naturalized citizen adults receive public health insurance, as do about 15 percent of non-citizens and 27 percent of native-born adults.
5. Survey of Income and Program Participation, month 36, wave 9 January 2004. Heads of household.
The lowest rates of coverage among immigrants are for private health and life insurance. In addition, coverage is consistently lowest among noncitizens. About 41 percent of noncitizens have private health insurance, compared to 56 percent of naturalized citizens and 61 percent of the native-born. Thirty percent of noncitizens have life insurance compared to 45 percent of naturalized citizens and 61 percent of the native-born. With respect to property/casualty insurance, there are sizeable differences in automobile and home ownership insurance rates, although the data are driven by underlying differences in car and home ownership rates—prerequisites to having auto and home owner insurance. About 78 percent of immigrants own cars compared to 86 percent of the native-born,4 and about 53 percent of immigrants own homes compared to 70 of the native-born.5
A less direct way to compare coverage rates is through expenditure data on home owner, vehicle, health, and life insurance. Because of the poor quality of responses to insurance expenditure questions,6 consumer expenditure data is most useful for capturing general differences in insurance usage between demographic groups. For example, the Consumer Expenditure Survey for 2004 shows that more Hispanic households (the survey does not collect information on country of birth) spend nothing on auto, home, life, and health insurance compared to non-Hispanic White households; but for those who do report expenditures on insurance, Hispanics spend a slightly higher amount of their annual incomes on auto and home owner insurance than non-Hispanic Whites. They spend a proportionately lower amount on health and life insurance.
Factors that Affect Coverage for the Foreign-born
Socioeconomic Factors and Type of Employment
A limited number of studies, focusing exclusively on health insurance, seek to explain differences in coverage rates between immigrants and the native-born. They tend to support the idea that what matter the most are socioeconomic factors and the nature of the jobs that many immigrants occupy (rather than being an immigrant per se), at least among documented immigrants.
For example, using data from Los Angeles, Goldman et al. (2005) find that having lower family income, less education, fewer assets, and working in an industry that is less likely to offer health benefits largely explain the difference in coverage between documented immigrants and the native-born.7 Another study by Prentice et al. (2005) using the same Los Angeles data finds that after adjusting for socioeconomic status, naturalized citizens are not significantly different from native-born citizens in their ability to gain or maintain insurance.8 Capps, Kenney, and Fix (2003) also emphasize the role of jobs in explaining the discrepancy in health coverage for citizen children of non-citizen parents. Much of the coverage gap between citizen children whose parents are not citizens and those whose parents are citizens stems from the significantly lower rate of employer-sponsored insurance among children in mixed-status families.9
These studies also agree that immigrants without ‘documented’ or citizenship status are less likely to have health insurance. Goldman et al. (2005) show that undocumented immigrants have lower rates of health coverage after controlling for a wide array of socioeconomic factors. Ku and Waidman (1999) also find that citizen status and language proficiency have a significant impact on insurance coverage. Prentice et al. (2005) find that, compared to citizens, undocumented and legal residents have shorter insured periods and are significantly less likely to gain insurance even when other factors affecting health insurance coverage are held constant.
Responses from focus group participants reinforce the idea that certain demographic and socioeconomic characteristics are associated with auto, home, and life insurance coverage. A 2005 study of Latinos in Los Angeles (sponsored by Allstate) found that consumers who are older, have higher incomes, and have more education are more likely than their counterparts to have both property/casualty and life insurance.10 English proficiency and time in the U.S. are also associated with degree of coverage. About 80 percent of Latinos who had lived in the U.S. more than two decades had car insurance, compared to about 40 percent of those who had lived in the U.S. less than ten years. About 70 percent of those with more than 30 years of residence reported having home or renter’s insurance, compared to 22 percent of the foreign-born with less than ten years of residence. About 60 percent of third-or-later-generation Latinos reported having life insurance, compared with about 30 percent of foreign-born Latinos.
Industry Norms and Practices
Another set of potential influences on insurance use relates to industry norms and procedures. A preliminary scan of underwriting practices, pricing policies, and marketing strategies reveals that a small number of industry provisions limits coverage for immigrants without citizenship or Social Security numbers. In addition, issues related to the neighborhoods where many immigrants live create their own hurdles to accessing insurance, although these environmental factors do not only affect immigrants. Even if it is not the intent of insurance companies to avoid immigrants, industry experts acknowledge that more work is needed to serve Hispanics and low- and moderate-income families,11 as well as African American, Chinese, and South Asian consumers.12
Underwriting Guidelines
The underwriting process, that of identifying and calculating the risk of loss from policyholders, can affect the type and cost of coverage that carriers make available to many immigrants. In the case of private health and life insurance, foreign birth can directly affect the decision to offer coverage. For example, a study of Texas health insurers found that nearly half of the companies surveyed set strict residency or citizenship standards for the sale of a health policy.13 Life insurance applications generally ask applicants to indicate their place of birth and the extent of their foreign travel. Life insurance companies are also subject to anti-money laundering laws under the Bank Secrecy Act and are required to file Suspicious Activity Reports for transactions of at least $5,000 (including payout amounts).14 As a practical matter, the agents and brokers of these firms who have direct contact with customers are responsible for obtaining relevant customer-related information. Most health and life insurance companies in the U.S. also require a Social Security number for individual coverage, although a handful of companies accept Individual Tax Identification Numbers instead.
Foreign birth is not explicitly considered in the underwriting of property and casualty insurance.15 However, other factors incidental to being an immigrant, such as living in a neighborhood with a high rate of ethnic concentration, may influence the underwriting decision.16 For example, a 1997 study by the Urban Institute found that home owners in predominantly minority neighborhoods are less likely to have private home insurance, more likely to have policies that provide more limited coverage in case of a loss, and likely to pay more for comparable policies.17 The debate associating race and coverage is ongoing.
The use of credit scores in the underwriting process is another practice that may make insurance less available or more costly to some immigrants. A growing number of insurance companies use credit-related insurance scores to help them decide whether to accept an applicant for automobile and home owner insurance, and sometimes to set a price for coverage. Insurance scoring takes into account payment histories, bankruptcies, number of credit accounts in use, amount of outstanding debt, length of credit history, and other financial practices as a way to predict the likelihood of having an accident and filing a claim.18 While credit-based insurance scores do not take one’s ethnic group or nationality into consideration, people with “thin” credit files, for whom companies cannot find a meaningful credit history, may be viewed negatively by insurance companies (although this is not always the case). A consumer can also be given a bad credit score—resulting in higher auto or home owner insurance rates—because of the absence of positive factors, including a real estate secured loan or the absence of credit information.19 In addition, a Social Security number is often needed to obtain an insurance bureau/credit score.
Pricing and Ratings Territories
The price of insurance is another factor that potentially reduces coverage among certain immigrants. The nominal prices of automobile, home owner, and health insurance rose by more than 25 percent, 45 percent, and 84 percent respectively between 2000 and 2006, compared to inflation of 17 percent over the period. Life insurance premiums have declined since 2000.20
Table 2. Average Annual Expenditures on Property/Casualty Insurance
Automobile Insurance ($) Homeowners Insurance Premiums ($)
2000 689 508
2001 723 536
2002 784 593
2003 869 668
2004 844 693
2005 863 711
2006 867 736
Source : <http://www.iii.org/media/presentations/pcoverview/>.
Table 3. Average Annual Worker Contribution to Health Insurance Premium
Single Coverage ($) Family Coverage ($)
2000 336 1620
2001 360 1788
2002 468 2136
2003 504 2412
2004 564 2664
2005 612 2712
2006 624 2976
Source: Employer Health Benefits 2006
Annual Survey
Immigrants may face even higher prices for property/casualty insurance if they lack a track record of insurance history in the U.S. Stability of residency and prior insurance coverage are common considerations in pricing decisions. Prices may also be higher for customers who buy fewer policies. Some companies that sell home owner, auto, and liability coverage will take 15 to 20 percent off of the premium if they can sell more than a single policy.21 Immigrants may also face higher prices if they live in neighborhoods with higher traffic density, a higher number of multi-family dwellings, or lower per capita income. Drivers from lower-income neighborhoods can pay between $50 to over $1,000 more per year for auto insurance premiums than those living in higher-income neighborhoods.22 Home owners in lower-income neighborhoods can pay as much as $300 more for home insurance than those in higher-income neighborhoods.23 High prices can negatively impact the decision to purchase insurance. The primary reason people go without health insurance—including the nonpoor—is the high cost of coverage.24 There are similarities to the property/casualty arena. Differences in average automobile insurance costs across neighborhoods (within a single metropolitan area) have large and negative impacts on car ownership rates.25
Marketing and Distribution
What immigrants know about insurance, the knowledge level of the person who explains it to them, and who is available to sell it to them are other factors that may affect participation in the insurance system. For many immigrants, their primary source of information about insurance is the ethnic networks that surround them.26 Immigrants who come from families with little experience with insurance in their home countries may therefore be at a particular disadvantage. The socioeconomic characteristics of a person’s neighborhood also appear to be related to one’s level of knowledge about insurance. The lower the income level of a neighborhood often means lower professionalism on the part of insurance agents. Yet the lower the income level of a neighborhood, in general the more education about insurance is needed.
A number of carriers and agents have already begun to respond to the changing demographics of the U.S. Many companies have adapted their marketing and distribution strategies to win a greater share of multi-cultural customers.27 Recognizing that more recent immigrants tend to prefer a one-on-one, face-to-face visit with an agent, and that people are most comfortable doing business with agents who are from their own communities, a number of companies have begun recruiting and training ethnic and bilingual agents,28 and have developed culturally sensitive advertising materials. Insurance companies have also situated agencies close to ‘mom and pop’ shops where neighborhood residents conduct their regular business. In addition to insurance, agencies offer diverse services like tax preparation, notary, and vehicle registration.29 Some have adopted multi-tiered distribution systems where they market their products both through independent brokers and captive agents. Some larger companies have bought up independent ethnically-owned smaller agencies. Some companies have also developed elaborate segmentation schemes based on socioeconomic status, time since migration, and country of origin of Hispanic immigrants, and designed special services to serve each segment.
The number of ethnic and culturally diverse agents varies across place and product lines. Anecdotal evidence suggests that in some places, like Southern California, the Hispanic market is saturated with ethnic agents. In other places, long-standing arrangements between carriers and agents often discourage the hiring and training of less experienced agents. Companies do not want to dilute existing franchises, and they continue to renew the contracts of agents who already generate a solid book of business. Reaching immigrant customers is an even greater challenge for life insurance agents, particularly those who sell investment- and account-based products. The life insurance distribution system is increasingly integrated with the financial sector, yet immigrants are less likely to own even the most entry-level financial products such as checking and savings accounts.
Conclusion
While much has been written about the factors that affect immigrants’ use of bank accounts, more work is needed to understand the issues that affect immigrants’ purchase of insurance, particularly property/casualty and life insurance. More work is also needed to determine the steps that can be taken to overcome barriers to insurance access where they exist. The strategies suggested by the information in this article range from developing new underwriting criteria for assessing the risk, to encouraging immigrants to open bank accounts and take advantage of alternative means to establish a credit history. A handful of companies have already developed new products aimed at the immigrant market, including mortgage insurance on loans to borrowers with Income Tax Identification Numbers30 and health insurance to holders of Mexican and Guatemalan consular-issued identification cards.31 The most comprehensive and effective strategies to deal with barriers to insurance may not focus on immigrants in particular, but address the environmental factors in neighborhoods with high concentrations of minorities and immigrants. As more companies publicly identify the immigrant market as a path for business growth, the success (or failure) of strategies to win these customers will likely contribute new insights into the factors that affect access to insurance.
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Robin Newberger is a business economist in the Consumer Issues Research Unit of the Federal Reserve Bank of Chicago. Ms. Newberger is currently working on research related to insurance and asset-preservation for minority, immigrant, and other urban consumers. She earned a B.A. from Columbia University, a Masters in Public Policy from the John F. Kennedy School of Government at Harvard University, and holds the Chartered Financial Analyst designation.
1. 2003. U.S. Housing Market Conditions. U.S. Department of Housing and Urban Development. <www.huduser.org/periodicals/ushmc/spring03>.
2. 2006. Autobytel’s Spanish Automotive Portal Gives Latino Online Car Buyers Tools, Content and Online Car-Buying “En Espanol.” PR Newswire Association LLC. Accessed January 19, 2006, from <www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/07-20-2004/0002213519&EDATE=>.
3. Batalova, Jeanne, and Dixon, David. 2005. Foreign-born Self-Employed in the United States. Migration Information Source. <www.migrationinformation.org/Feature/
display.cfm?id=301>.
4. 2004. Survey of Income and Program Participation, month 36, wave 9. January 9.
5. 2005. American Housing Survey.
6. In the Consumer Expenditure Survey of 2004, nearly 34 percent of non-Hispanic Whites who say they own a car report no expenditures on automobile insurance.
7. Goldman, Dana, Smith, James P., and Sood, Neeraj. 2005. Legal Status and Health Insurance among Immigrants. Health Affairs, Volume 24, Number 6.
8. Pebley, Anne R., Prentice, Julia C., and Sastry, Narayan. 2005. Immigration Status and Health Insurance Coverage: Who Gains? Who Loses? American Journal of Public Health, Vol. 95, No. 1. January.
9. Capps, Randolph, Fix, Michael, and Kenney, Genevieve. 2003. Health Insurance Coverage of Children in Mixed-Status Immigrant Families. Snapshots of America’s Families III, No. 12, the Urban Institute, November.
10. Lee, Jongho, Ph.D., Torres, Celina, and Wang, Yin. 2005. Living in the Present, Hoping for the Future: Latinos and Insurance, A Los Angeles Case Study. <www.trpi.org/PDFs/insure.pdf>.
11. Whitney, Sally. 2005. Best’s Review Survey: Scratch an Interest Group, Find a New Insurance Customer. Best’s Insurance News. April.
12. Green, Meg. 2005. Market Expansion. Best’s Review, May.
13. 2006. Underwriting Guidelines Used in Texas: A Review of Health Insurance Underwriting Guidelines Used in Texas Summary Findings—Parts I and II. Accessed on February 27, 2006, from <www.opic.state.tx.us/page.php?p_sub_page_id=9>.
14. 2005. Insurance Companies Required to Establish Anti-Money Laundering Programs and File Suspicious Activity Reports. FinCENnews Press Release. <www.fincen.gov/newsrelease10312005.pdf>.
15. One circumstance in which immigrant status may directly affect access to property/casualty insurance is in the case of “drivers certificates” issued to immigrants without Social Security numbers. Many insurance companies do not insure certificate holders.
16. 2006. Independent Insurance Agents and Brokers of America. Accessed on May 16, 2006, from <www.iiaba.net/TC/Consumer/Auto/autoinsurance101.htm>.
17. Galster, George, Wissoker, Douglas A., and Zimmerman, Wendy. 1997. Testing for Discrimination in Home Insurance. Urban Institute. <www.urban.org/url.cfm?ID=307555>.
18. 2006. Credit Based Insurance Scores: What Consumers Need to Know. American Insurance Association. <www.aiadc.org/AIAdotNET/docHandler.aspx?DocID=290558>.
19. 2007. Credit Scoring Questionnaire to Assist the National Insurance Task Force Research Subcommittee. <www.cej-online.org/Questionnaire.pdf>.
20. 2006. Life Insurance Premiums Expected to Decline by 4 Percent in 2007, Says the Insurance Information Institute. The Consumer Insurance Guide. Insurance Information Institute. Accessed on January 17, 2007, from <http://info.insure.com/life/iii_premiums.htm>.
21. 2005. Insurance Institute of Indiana: Auto Insurance. <www.insuranceinstitute.org/pdfs/factbook04-05/Chap1.pdf>.
22. Fellowes, Matt. 2006. From Poverty, Opportunity: Putting the Market to Work for Lower Income Families. The Brookings Institution Metropolitan Policy Program. <http://media.brookings.edu/mediaarchive/pubs/metro/pubs/20060718_povop.pdf>.
23. Ibid.
24. Lessem, Ann et al. 2002. Uninsured Texans: Attitudes toward Coverage. Public Policy Research Institute, Texas A&M University. January. Also, Facts on Health Care Costs. National Coalition on Health Care.
25. Ong, Paul. 2001. Car Ownership and Welfare-to-Work. Journal of Policy Analysis and Management, Vol. 21, Issue 2.
26. Lee, Jongho, Ph.D., Torres, Celina, and Wang, Yin. 2005. Living in the Present, Hoping for the Future: Latinos and Insurance, A Los Angeles Case Study. <www.trpi.org/PDFs/insure.pdf>.
27. Zolkos, Rod. 2005. Cultural Competency Is Key to Success with Ethnic Groups. Business Insurance Industry Focus. February.
28. Zolkos, Rod. 2005. Cultural Competency Is Key to Success with Ethnic Groups. Business Insurance Industry Focus. February. Also, 2004. Best’s Review. September.
29. 2005. Best Insurance News. April 22.
30. In January 2004, Mortgage Guaranty Insurance Corporation introduced the first mortgage insurance program for ITIN holders.
31. This product is offered by Blue Cross of California, whose parent WellPoint Inc. is the nation’s largest health insurer. 2005. BusinessWeek. July 18.
The Customs-Trade Partnership Against Terrorism (“C-TPAT”) is a voluntary program established in November 2001 with the aim of engaging the global supply chain community and empowering participants to play a critical role in assisting Customs in achieving its dual objective of securing our nation’s borders and improving facilitation of trade. Importer members of C-TPAT must demonstrate that the supply chain lines under their direct control meet the minimum security requirements established by Customs. The importer must also demonstrate that its business partners comply with the requirements. Those business partners who are eligible for C-TPAT membership establish compliance through the application process. Those who are not eligible, such as foreign manufacturers, comply as a condition of doing business with the importer.
C-TPAT at Work
C-TPAT is a business-government partnership with the goal of reducing the risk of terrorists using the international supply chain to smuggle money, weapons, or people into the US. This program allows for flexibility based on the particular level of resources at the disposal of individual participants and the position within the supply chain occupied by the participant. Cooperation, communication, self-policing, and a commitment from both sides to implement current and future security criteria form the basis of the partnership. Members of C-TPAT then use their own participation as leverage with their business partners to increase security. Service providers in the international supply chain use C-TPAT membership as an effective marketing tool when soliciting new business.
Participation requires not only an assessment and possible upgrade of facilities and other physical attributes, but at its core it requires knowledge of all processes involved in a company’s daily business. It requires knowledge of all aspects of cargo production, packaging, handling, shipping, and distribution. Among the questions inherently answered in the application process:
1) How well do you know your overseas agent or service provider?
2) Do you have the willingness and resources to adequately screen and analyze current and potential business partners?
3) What is the quality of the communication and documentation they produce?
4) Do they use a proper seal on the shipping container?
5) How do you handle data or cargo discrepancies?
6) How open are the lines of communication between your company and your business partners and Customs?
Many businesses may have previously answered these and a number of related questions while undertaking a quality initiative such as ISO 9000 Certification, thereby making their C-TPAT application process relatively routine. Moreover, the government’s intent is not to make the C-TPAT process cumbersome, and many companies already meet the minimum requirements through their current common-sense business practices.
Costs and Benefits of C-TPAT
Costs for implementation and maintenance of security criteria naturally vary with the type and size of the commercial enterprise. The largest percentage of costs, whether in the implementation or maintenance phase, fall in the following randomly listed five categories: physical security, cargo security, personnel salaries and expenses, IT systems and databases, and use of security for personnel. These categories often represent the deepest and most expensive areas for a company, whether for a multi-national corporation or a small freight forwarder in a multi-tenant building. On the other hand, implementing and maintaining screening and security procedures for personnel and establishing training and awareness programs generally require lower costs.
Benefits of program participation arise in both tangible and intangible varieties. Tangible benefits include a decrease in the time it takes for Customs inspections and cargo release, predictability in the movement of goods, less cargo theft, and increased workforce security. Decreased dwell times for inspections and releases can translate to earlier out-gates at port facilities and improved speed to market, while shipment predictability allows the channeling of energy and resources toward more problematic or higher risk situations. Among the intangible benefits of C-TPAT participation, enhanced supply chain security, elevated industry standards, and improved procedures for risk management stand out as enticing incentives to join the program.
The Port Program
Customs created the Container Security Initiative (“CSI”) in order to focus attention on the potential use of ocean shipping containers as agents of terrorism. The program combines Customs officials with their host nation counterparts and has the purpose of protecting the flow of the international supply chain from terrorist infiltration and disruption. As of this writing, 58 ports around the world have become operational under CSI, involving 13 ports in the Americas and Caribbean, 23 in Europe, 14 in Asia, seven Middle Eastern ports, and one in South Africa. Since its inception in January 2002, more than two dozen Customs administrations around the world have committed to CSI.
CSI at Work
CSI establishes a security regime that identifies and inspects any shipping container exhibiting a terrorism risk prior to stowage on a vessel destined for the US. The initiative stands on three core elements:
1) identify high-risk containers, through advance information and intelligence;
2) prescreening and evaluation prior to shipment, generally at the port of loading;
3) use of non-intrusive technology for prescreening, to avoid delays in the movement of goods.
CSI targets vulnerabilities in the maritime environment through advance information and trade data. The 24-Hour Rule provides the basis of the information; it requires submission of 14 manifest and bill of lading data elements to Customs 24 hours in advance of the cargo loading onto a ship in the foreign port. Importers use the automated manifest system (AMS) to provide this information, and Customs then employs the automated targeting system (ATS) to apply targeting rules to pre-screen every US-bound shipment. Targeting and examinations occur during the natural lag time between the shipment’s arrival at the port and the time it loads to the vessel, meaning the program does not impose any competitive disadvantages. During this period Customs assigns a level of risk for terrorism.
As a reciprocal program, CSI offers participating countries the option of stationing their own Customs representatives in US ports to monitor potential high-risk exports to their homeland. Currently, some US ports have their counterparts from Japan and Canada positioned there.
Development and expansion of the program rests on a number of minimum standards such as: the existence of regular, substantial container traffic between the foreign and US ports; allowing non-intrusive inspections of containers and making the equipment necessary for such inspections available; commitment to a risk-management system, commitment to develop an automated data sharing system; commitment to assess and resolve port vulnerabilities; and a commitment to identify and overcome lapses in employee security.
CSI Costs and Benefits
As noted above, implementation of the program at a given port requires that the host country pays for and provides the non-intrusive equipment, and the host country determines who shall pay for the screening and stripping of the container. In the US, the importer has responsibility for the cost of inspections and container stripping. The US bears the cost to deploy Customs officers in foreign ports.
Benefits of the program are of the intangible nature, beginning with expedition through Customs upon arrival at a US port based on the occurrence of the joint prescreening at the foreign port. Known low-risk containers will move quickly through the supply chain and allow Customs officials to concentrate resources on high-risk shipments. Also, ports with CSI in place will enjoy competitive advantages over non-CSI ports because containers arriving at the latter will face inspection delays before moving on, while prescreened CSI containers will not.
How do C-TPAT and CSI interact and complement one another?
C-TPAT and CSI complement one another and provide a checks and balances system when taken together. Participants in C-TPAT generally represent the various actors in international trade such as manufacturers, importers, brokers, and forwarders, while CSI limits its membership to ports. CSI relies on advance information and market intelligence to determine whether an inbound container requires high-risk treatment. In many cases, the C-TPAT partner will provide that advance intelligence because they will have screened their suppliers, manufacturers, service providers, and any other entity with a role in the production, handling, and delivery of the container load from the point of stuffing to the port of loading. The C-TPAT partner will have ensured the integrity of its business partners and the documentation associated with the load, thereby ensuring to the CSI port that the inbound container represents a low-risk proposition. In the event a tendered load does not originate from a C-TPAT partner, or a discrepancy arises between the point of origin and the time the container arrives at the port, the screening devices at a CSI port, along with the associated visual inspection, provide the ability to recognize a potential threat and handle it in a proactive manner.
C-TPAT and CSI in a Global Perspective
The World Customs Organization (“WCO”), an intergovernmental organization based in Brussels and charged with facilitating trade by harmonizing and simplifying Customs procedures, has 171 member nations and has developed initiatives similar to C-TPAT and CSI. The SAFE Framework of Standards (Secure and Facilitate Global Trade) seeks to harmonize advance electronic cargo information, employ consistent risk management, perform non-intrusive inspection using X-ray equipment, and define benefits for meeting minimal security standards. It relies on improved relationships between Customs administrations and between Customs and the business community, and it incorporates aspects of CSI. Similarly, the WCO’s Authorized Economic Operators (“AEO”) program mirrors C-TPAT by requiring that business entities involved in the international movement of goods adhere to minimal supply chain security standards. The SAFE Framework incorporates AEO, and to date 149 member nations, including the US, have expressed their intention to implement its provisions.
The WCO adopted the SAFE Framework in 2005, and earlier this year two member nations entered into the first cooperative arrangement under the Framework. A Mutual Recognition Arrangement, signed by the US and New Zealand Customs Services, provides for closer cooperation and coordination between C-TPAT and the New Zealand equivalent known as Secure Export Scheme (“SES”). Under the arrangement, members of C-TPAT and SES will receive comparable treatment under the partner security program. This will provide businesses quicker access to goods and allow the respective governments to allocate resources to priority areas. The arrangement also illustrates the commitment of member nations to facilitate trade and enhance security by taking part in the management of the global supply chain.
The voluntary programs discussed above reflect the willingness of government and business entities involved in international trade to take meaningful steps to prevent the global supply chain from becoming an avenue for terrorist agendas. These programs dovetail nicely with existing trade laws and regulations without imparting any new liabilities on their participants. This shared burden between government and industry protects widespread economic interests and produces a tangible awareness that not only benefits those directly involved, but also end users and consumers who benefit from a supply chain free from disruptions and uncertainty.
For more information, visit the appropriate Web sites for US Customs, www.cbp.gov, and the WCO, www.wcoomd.org.
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Matt DeFlorio spent the past 10 years in international transportation and recently earned a J.D. from The John Marshall Law School with a Certificate in International Business and Trade Law. He works for the law firm of Rodriguez O’Donnell Ross in Chicago. Rodriguez O’Donnell practices in the areas of Customs, International Trade and International Transportation law. For more information about the firm, please visit our Web site: www.rorlaw.com. Matt can be reached at 773/314-5000, or mdeflorio@chicago.rorlaw.com.