‘Insurance efficacy’ roundtable – there is more buyers can do

Insurance efficacy is what most Airmic members want to achieve, and the subject of a big project being undertaken by technical director Paul Hopkin. He took notes as a group of insurance buyers, underwriters, brokers and a loss adjuster sat around the table to share their views. Whilst insurers came in for some stick, it was clear that buyers can also do more to ensure that large claims are paid. Many, it seems, do not fully understand the policies they are buying.  Mark Baylis reports.

Why pay more than necessary for your insurance when, at least in the eyes of some jaundiced finance directors, insurers cannot be trusted with big claims? Why not save money by going for the cheapest quote, effectively commoditising the product and marginalising the role of the professional buyer? This was the provocative question posed by Airmic chief executive John Hurrell, who chaired the roundtable.

First the good news.  Of those present only Richard Henton of Willis thought that it had become more difficult to make a large claim. Colin Bradbury of RSA actually thought things had improved. “According to our data, larger claims are being settled quicker. The time span has reduced quite significantly,” he said.

The mid-way position was summarised by Nicola Harvey of Christie’s. Things are no worse, she said. “They have always been bad”.

Iain Hovell of IHG did not believe large claims had become more contentious, but commented on the “heavy burden of documentation”.

“There are loads of people in the market agitating” – Colin Campbell

Colin Campbell of Arcadia shared Harvey’s scepticism. His comments were based mainly on other people’s experiences - his company has very high deductibles and so makes few claims, but he does talk to a lot of insurance buyers. “There are loads of people in the market agitating,” he said.

“My job is to make sure we stay in business. I would like to think the insurer would partner me in this, but I am not so certain.”

To put things into perspective, no one was suggesting a simplistic scenario with ‘bad’ insurers trying to dodge their obligations. If that were the story, then risk managers would need merely to identify and choose a ‘good’ cover provider. The challenges have much more to do with the complexity of some claims, the widely-held view that insurers need to do more to invest in the skills of their claims staff, re- and co-insurers that take a contrary view and the tendency of lawyers to step in with interpretations of wordings that the underwriters never intended. 

“The timeliness of the claims settlement process is a really important point” – Nicola Harvey

Furthermore, whilst the use of reservation of rights may not lead to a claim being refused, it can delay things and make it impossible for companies to put it on the balance sheet. As Nicola Harvey expressed it, she feels a “right Charley” when her CEO asks whether a particular claim will be paid and she cannot give a definitive answer. “The timeliness of the claims settlement process is a really important point,” she said.

Above all, it seems, problems with big claims have to do with inadequacies pre-inception and at placement. This could take the form of misunderstood wordings, perhaps because they have been insufficiently explained by brokers or insurers. (Colin Bradbury of RSA acknowledged that underwriters generally respond to questions rather than challenging the buyer’s perceptions.)

Alternatively, it could involve incomplete or non-existent scenario testing or the inclusion by insurers of warranties or basis clauses or the exploitation of disclosure rules.

The key point from this lively discussion is that risk managers have the solution within their grasp – provided they understand how their policies will respond and, if necessary, adapt them to their organisations’ needs. No one around the table challenged a statement, originally made at the London Claims Conference, that 90% of problems with claims could be avoided if only things were right pre-inception.

Iain Hovell said to general agreement that good communication, transparency and partnership are a good place to start. He commended the use of customer relationship managers (though Nicola Harvey to his left said they sometimes merely represented another cog in the process).

“Most of the policyholders I see don’t fully understand what they’re covered for” – Candy Holland

Candy Holland of Echelon then admitted to a bee in her bonnet: “the amount of time that gets spent interpreting wordings that are not at all clear,” leading to delays and the increased use of lawyers. “Most of the policyholders I see don’t fully understand what they’re covered for,” she said. Transparency is also a major issue when claims are made. Insurers too often do not inform their customer what they doing behind the scenes, for example taking legal or other expert advice. “If only people knew what was going on they’d be a lot happier,” she said.

“We consider front-end conversation to be absolutely vital” – Paul Handy

Paul Handy of Crawford stressed that pre-loss and scenario planning were “very, very important.

“Our role, contrary to popular opinion, is to find ways to pay the claim, not to reduce it.   The issues come about when we come across policies that are not adequate. Underlying all this is communication. We should be spotting and communicating these problems with risk managers at the outset so none of this comes as a shock. To this end we consider front-end conversation to be absolutely vital, working in partnership with the insured organisation.”

Asked by John Hurrell in the chair what role adjusters would normally play, he said the initial discussion was all part of the service. “However, if you want us to provide more in-depth consultative services, then these might be chargeable,” he said.

Paul Hopkin of Airmic, who had been listening and taking notes, asked the group to touch on the related questions of reservation of rights, notifications and requests for further information. “The procedural issues that can stall claims have proved to be a really big issue for members,” he said.

Claims protocols are “absolutely essential”, said Candy Holland as they should clarify what will happen in practice and answer questions such as: what does ‘as soon as practical’ actually mean.

“And, very importantly, how are the local and master policies going to work together,” said Nicola Harvey.

Paul Handy agreed that understanding process in the event of a big loss was important.

At this point Stuart Gallagher of AIG joined the discussion. “A lot of the things that are being asked for, I can’t help thinking that we already do or are striving to do for our major account clients” he said.

He explained that he had recently attended a pre-inception meeting with a client involving claims and underwriting colleagues, the client’s claims manager and the key broking personnel.  The meeting was held to analyse policy wordings and discuss interpretation around some real-life scenarios. He also extolled the merits of claims relationship managers in the marketplace  (“If they’re any good,” chipped in Nicola Harvey).

However, challenged by Richard Henton who suggested it would not be practical for AIG to provide this level of service to everyone, he said it was for “a distinct, but growing numbers of clients.”

"Consistent investment in claims and underwriting technical skills is required" – Colin Bradbury

Colin Bradbury of RSA said that consistent investment in claims and underwriting technical skills is required, even though there had been some recent improvement in this area. “There only are a finite number of people who would be able to turn up to a meeting like that,” he said.

He added that, in order to make full use of resources, it was essential to ensure that only the appropriate people attended; prior notice of issues and areas of discussion would assist all parties. He agreed with earlier comments about the value of client relationship managers. 

Iain Hovell stressed the importance of testing in advance how the wording would work. Nicola Harvey added that this is about more than just coverage, but about process too. Paul Handy agreed: “Who does what, and how do they do it?” he said.

“In the current financial climate,” he continued, “wordings are being looked at more closely than ten or fifteen years ago, and with that comes a greater burden of proof.”

Colin Campbell supported the idea of pre-inception meetings, especially where underwriters are involved. “It’s a fantastic opportunity,” he said.

“We have never done one [a pre-inception policy review] that hasn’t thrown up something that the policy holder appreciated,” concurred Candy Holland.

“You can understand how the underwriter’s mind works,” added Colin Bradbury.

At this point the chairman John Hurrell brought in Richard Henton of Willis for his first major contribution. His assessment was that things had got worse when it comes to paying large claims. He queried the earlier assertion by Paul Hendy that the loss adjuster’s role is to find ways of paying claims, saying it depended very much on the particular insurer and loss adjuster.

"Get issues resolved early in the claim before lawyers become involved" – Richard Henton

He noted that lawyers are not normally present at pre-inception claims scenario discussions, and yet they often pull the strings on large claims when it really matters. The lack of technical knowledge among insurance staff, he said, “leads them to hide behind lawyers, who end up directing matters and are not speaking to the insureds.”

His advice was to get issues resolved early in the claim before lawyers become involved. Delays can mean that underwriters are prevented from acting according to the intention of the policies when legal advisers find that claims can be avoided.

He highlighted three aspects of a claim that have an effect on whether and how it is paid: technical issues; personal relationships and commercial relationships. In his experience, whilst the technical side was of paramount importance it was the personal and commercial relationships which influence the claim process and allow difficult issues to be resolved amicably.  This can lead to insurers being willing to make substantial payments to maintain the goodwill of large customers, he said.

Stuart Gallagher strongly disagreed with this last point, insisting that claims should be considered on their merit. However he did acknowledge the importance of commercial relationships in helping risk managers make the best possible case to their insurers especially when establishing quantum. 

“I would actively encourage buyers to request that the right people come to meetings” – Stuart Gallagher

So, what can risk managers do to ensure that large claims are paid? By now, there was a consensus that getting it right up-front is critical. Stuart Gallagher commended meetings with claims people pre-inception. “I would actively encourage buyers to request that the right people come to meetings,” he said. The type of issue to be considered included whether a particular weather event might for example be considered a storm or a flood – which could be significant because it would affect deductibles. Colin Bradbury added that it was important to identify who the right people were. His company, he said, looked at all major losses to see what claims lessons could be learnt.

Colin Campbell said that renewal discussions were to a large extent about asking the company’s insurers about claims that had not been paid or not paid in full, and why. He commented also that understanding disclosure requirements was a long, labour-intensive and arduous process, but essential.

Candy Holland stressed the importance of getting the right wording to fit the business risk, a particular issue being Business Interruption. “A lot of problems occur,” she said, “because it’s a bog standard wording that does not fit the business model. Businesses change, but the standard BI wording has largely remained the same for 25 years. There appears to be a lack of detailed consideration around this issue.” Sub-limits were an example she said, with some being “woefully inadequate”.

Richard Henton of Willis said the broker’s obligation was to advise the client to ensure that their insurance cover met their business needs.  Brokers were not, however, valuers and therefore risk managers needed to take independent advice. He went on to urge insurers to invest in scenario reviews pre-inception. Under-insurance is prevalent, he said, and underwriters would attract more premium income if this were put right.

John Hurrell asked the risk managers whether they used lawyers pre-inception; all three said they did. Nicola Harvey and Colin Campbell said doing so brought greater clarity and was reassuring to senior management. Iain Hovell went further, saying he had done so three times, with emphasis on D&O and other Liability classes. To some amusement, he said the experience had been “pleasurable”. It had, he said, led to changes in wordings.

There followed a discussion around the differing roles of brokers and lawyers in giving pre-inception advice. In the ideal world, the broker would do it all. However, as Paul Handy pointed out, they have different perspectives and thought processes. As he put it, “lawyers look at words”.

So, where does all this leave the risk manager? Well, in quite a strong position – at least in theory. Someone has to take responsibility for ensuring that an insurance policy responds as required, and that person is the buyer. The message from this roundtable is that it can be done. It may be hard work, time-consuming and at times boring, but it is possible for Airmic members to achieve a much higher level of claims certainty.