BI SIG 2009 Technical Conference Report
Some terminology on Business Interruption policies could be updated to ensure they remain relevant in the modern insurance industry, delegates at the BI SIG were told.
The BI SIG gave an update on its ongoing review of BI policy wordings following its seminar at the Willis Building in the City of London earlier this year which had been attended by a wide cross section of insurance market - including underwriters, brokers, loss adjusters and forensic accountants.
Damian Glynn, Chairman of the BI SIG, chaired the conference session. He said the group did not believe policy wordings were “ineffective” but suggested that specific aspects of them could be modernised.
“We cannot be prescriptive. We will suggest what might be clarified, with optional approaches, rather than putting forward one recommended stance. Our objective is to help avoid surprises at claims time, for anybody involved, client, broker, or insurer,” he said.
TERMINOLOGY
Gerald Williams, Tim Thompson, and Sue Willmott spoke at length during the early morning session. Gerald, a former CILA president, began by using the term Gross Profit as an example of one that could be updated.
“There is a simple solution to the confusion of term Gross Profit, which often leads to under insurance or low declarations because the term has no absolute meaning and is used differently in financial accounts: change within the policy to Insured Profit. As this is not a recognised term it will lead to a request for a definition before a calculation is made," he said.
“Alternatively there is a radical solution to the confusion about Insured Profit: declare budget turnover (maximum of 12 month period) and then apply a suitable rating factor for your specific business.”
The speakers said the term Purchases could also be misunderstood and suggested that Purchases of stock, raw materials and components/consumables would reduce under insurance and the incorrect declarations that occur as a result.
WHAT NEXT?
The BI SIG will now recommend that the insurance industry either considers using new terminology or clearly defines the terminology used in specific policies. Following the conference, it will issue a summary report of the "quick wins" and then will implement a review process to complete the work. Anybody who wants to be part of this process will be given the opportunity to do so.
“This will not be a short task and will involve extensive collaboration with the insurance market generally,” Damian added.
FINANCIAL CRISIS
Jonathan Clark turned to the financial crisis after the mid-morning break, as attendees pondered what lessons could be learnt from the economic downturn one year on from the collapse of Lehman Brothers.
Jonathan drew on his time at the Financial Services Compensation Scheme where he was director of claims between June 2007 and May 2009
After revisiting memorable moments from the past 18 months, including the merger between Lloyds TSB and HBOS, he explored what loss adjusters should draw from the experience.
“There is a lot of information out there that can give a picture of what's going on in the wider economy, but not always what's going on in the particular business suffering a loss. It's important to understand the individual business and the impact of any loss will have on it and its future revenue.
“We have to balance what is going on in the wider sector against our individual performance in any evaluation of financial loss. There are counter recessionary influences and whilst we might be in a downward trend overall at the moment there is a time when the recession will turn.
“The need for true adjusting skills on investigation and negotiation remains as critical now as ever.”
Download Presentation (Powerpoint format, 353Kb)
VIEW FROM THE OTHER SIDE
Rounding off an interesting morning, Heather Parkinson of Parkinson Consulting ventured to the “other side”.
Heather described how her role varied between claims presentation work and traditional loss adjusting, meaning she experienced working on business interruption claims for both insurers and policyholders.
During a lively session, that drew questions from the across the room, she explored the difficulties the insured face after major incidents.
“A devastating fire in a business you have built up takes its toll personally as well a financially. Major claims are personal - not just an intellectual or accounting exercise.”
The discussion then turned to how the insurance industry can help the insured during the interim period. Heather said it was “vital” to give the insured cash, especially in the current economic climate.
“The insured cannot easily borrow and the relationship with the bank can fall apart when the assets existing loans are secured on are destroyed. Timely interim payments can only be made if any policy liability issues are dealt with as quickly as possible, but I appreciate that insurers have to make enquiries,” she added.
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SUPPLY CHAIN: THE PHANTOM MENACE RETURNS
Harry Roberts chaired the first session in the afternoon, offering a number of scenarios for discussion . These sought to explore issues of proximate cause and to stimulate debate about which losses arising after an incident were covered by the policy. These included claims for loss from the supply chain, notably supermarkets.
Harry noted that a good indication of whether a cost might be payable as an ICW or not was whether the Insured had a choice to incur the cost. If they did, it might well be an ICW.
In concluding discussion , Harry offered three guiding principles to apply when considering whether a loss/cost should be allowed for in a BI claim:
- The frustration of effort to mitigate a BI loss does not in itself represent a new loss - the loss originally presenting itself has not changed, albeit it will now crystallise;
- Events that could have occurred anyway are unlikely to arise as a direct result of the initial Damage;
- The Insured are required to mitigate their loss, albeit issues beyond their control merit consideration.
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LEGAL ISSUES
Barlow Lyde & Gilbert sponsor the BI SIG, and David Abbott and Victoria Sherratt, both partners at the firm, spoke on a range of legal isues relevant to BI claims.
David addressed the issue of causation, and the need to identify the dominant cause in any case, as well as considering the chain of causation. He concisely considered the issue of concurrent causes (insured/uninsured, and insured/excluded) with reference to relevant case law, before moving on to topical issues with regards notifiable diseases.
Victoria considered the issue of when damage occurs, in the case of progressive movement in commercial subsidence cases, for example. Whilst pre existing Damage would not be covered, the degree of any worsening over a period required careful consideration.
There was specific discussion about composite structures and the extent to which the installation of damaged components to a building represents Damage to the building itself.
Graham Eklund, from Four New Square, also spoke in this session, dealing with Utmost Good Faith and discussion of the case of Sprung v Royal Insurance. The need for all parties to act expeditiously was discussed, with reference to case law as appropriate. The old perennials of Impecuniosity and the circumstances in which interest might be payable (or not) were ably addressed.
Download Presentation from David Abbott (Powerpoint format, 270Kb)
Download Presentation from Victoria Sherratt (Powerpoint format, 243Kb)
Download Presentation from Graham Eklund QC (Powerpoint format, 175Kb)
Damian Glynn rounded the day off with his thanks for the efforts of all of the speakers in helping to produce a thought provoking day. A worthy mention is also made of the basic BI sessions the next day, led by Phil Beadsmore, which dealt with dry subjects such as accounting systems and documentation in a an entertaining and informative way.
