A Reunion AG roundtable
A MATTER OF DEBATE
Industrial construction is a relatively new risk that is increasingly being insured in Russia. In the second part of a roundtable discussion hosted by Swiss intermediary Reunion AG, the finer points of insuring this risk, including the clauses that determine maximum coverage limits, were debated.
limits. The debate was introduced by Igor Prandetsky, a member of the board from Reunion based in Zug, Switzerland, who described the subject as a relatively new, but important, one to the Russian insurance market. He then handed over to Vitaly Valyuk, the head of the industrial insurance department at Russian insurer Sogaz, who outlined the key issues.
T
Valyuk first sought to draw attention to the increasing use of LEG 3 clauses in the market. This is an exclusion clause originally drafted by the London Engineering Group (LEG), which determines the extent of the maximum coverage of a policy and, often, for how long it is valid.
He said that the use of these clauses entered the Russian market only
relatively recently and was driven by international brokers. “Because this market is so new and so young, clients in Russia are relying on brokers to tell them what they need and, under LEG 3, they are succeeding in
48 | INTELLIGENT INSURER | October 2011
he topic of the second session of the roundtable held by Swiss reinsurance intermediary Reunion AG was industrial construction and, specifically, the clauses that determine maximum coverage
securing wide coverage limits and policies that are valid for a long period afterwards,” he said. The policies include items such as defect coverage, regardless of whether the client really needs it or, more importantly, the insurer has correctly accounted for these things in the pricing of the policy.
“These clauses were brought to the Russian market by international
brokers. As a result of strong competition between them [brokers], clients often received the maximum coverage immediately in the new market,” said Valyuk. “A very wide coverage is advantageous for clients and they grasped that, but unfortunately, they seldom understood why they needed it. Then the brokers started to compete on the validity period of the clause. As a result, they got a very wide coverage and long warranty periods. Also, clients wanted defect coverage, whether or not they needed it.”
Valyuk’s concern, he emphasised, was that few Russian insurance
companies understand how to underwrite risks such as defect coverage. As projects in Russia become larger, thanks to huge electrical construction projects and modernisation schemes for oil and gas, so the risks get bigger.
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