De-risking the Insurance Process B
Broker Perspective
Chris Brady Director cbrady@
insurance-partnership.com
In the event of a catastrophic loss, an effective insurance policy could make all the difference between company survival and failure.
As the number of disputed insurance claims increases, the Mactavish Protocols (prepared in conjunction with PWC) raise some serious and thought provoking issues for UK companies, not least the conclusion that many are left desperately exposed when it comes to their insurance arrangements.
Mactavish (a specialist global insurance research practice) stated that corporate insurance has never been so important for British businesses than it is today, with balance sheets still vulnerable, cash flow often tight and constraints on credit. In the event of a major incident which could affect trading, company profitability and potentially reputation, insurance is a particularly vital financial back-stop.
Chris Brady is a Director of The Insurance Partnership (TIP) and Head of TIP Corporate Risks Division.
Chris has 20 years insurance experience, is ACII qualified and achieved an LLB (Hons) at Liverpool University. He joined Griffiths & Armour, then Willis the global broker before becoming a founding partner in the specialist team that has evolved into TIP Corporate Risks.
The Mactavish report, based on more than 600 consultations with clients over a two-year period and over 100 interviews with senior insurance industry executives, suggests that insurance is often unreliable and highlights a number of key flaws, namely: inadequate disclosure of risks, ignorance of insurance law, a failure to gather relevant information and a lack of understanding of how large claims are processed. It goes on to suggest a series of reforms essential to counter the potentially devastating consequences of disputed claims and uninsured losses.
It is contended that medium-sized companies are especially vulnerable to having claims delayed or disputed, says the report, and can suffer doubly when they do not employ full-time insurance professionals and lack the financial resources of the larger businesses.
The key findings are as follows:
n The lack of value that UK clients attach to insurance cover.
n The failure of insurance brokers and insurers to engage closely with their clients and understand their changing risk management needs and elicit all essential material facts.
n Lack of tripartite partnerships between insurance brokers, insurers and clients.
n Failure to help clients anticipate emerging threats and mitigate/control their exposures more effectively.
The Mactavish observations include:
n Insurance buyers do not adequately understand insurance law and the duty it imposes on them.
n Current risk disclosure is fundamentally inadequate.
n The prevailing model of insurance buying is deeply flawed.
n Buyers currently have no way of vetting insurers’ understanding of risk.
n Policy wordings and loss scenarios are rarely discussed prior to claims occurring.
n Upfront post-loss planning is not the norm in the corporate insurance market.
The facts:
n 87% of companies are unaware of how onerous the duty of disclosure is.
n 45% increase in the total volume of corporate RCJ insurance policy disputes (2008/2009).
n 131% increase in corporate professional negligence cases against brokers (2008/2009).
A changing insurance market cycle where there is pressure on Insurer Combined Operating Ratio’s and capacity is limited, driving insurance rates and premiums up (termed a “hardening” market), coinciding with the paradigm shifting post recession world, coupled with restricted access to credit compounds the problems. Such a situation is expected to result in insurers taking an even harder
52 Author Viewpoint
Risk and Insurance in Private Equity and M&A 2012/13
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