Nearly half of large corporate claims are disputed by insurers - Mactavish
UK corporates face a growing risk of insurance claims not paying out, according to the consultancy Mactavish. Its data suggests that 45% of larger, more complex commercial claims are currently disputed by insurers, and that on average they take three years to resolve, with settlements of around 60% of the initial estimated values.
The firm, which specialises in insurance governance, says that the boards of many UK corporates lack an adequate understanding of the limitations and conditions of their insurance policies.
Mactavish also warns that regulatory developments, such as The Insurance Act 2015 and the update to the Corporate Governance Code earlier this year, are increasing the focus on risks at board level. Where senior directors do not understand all the dangers and threats facing their organisations there is a greater chance that insurers will refuse to pay out on claims, because they were not told about all the risks they should reasonably have known.
Such outcomes are very damaging for a company and the reputations of the directors, who could be sued by shareholders.
Bruce Hepburn, CEO of Mactavish said: "Generally speaking there is low board engagement in insurance, which is out of line with their focus on other capital instruments. All chief financial officers, for example, would know about their banking covenant conditions, but very few would have knowledge about the limitations of their insurance cover."
“Anything that impacts the reputation of insurance as an effective part of the solution to today’s risk challenges is very worrying,” said Airmic CEO John Ludlow. Boards are facing an ever-growing list of risks and responsibilities. Businesses should run serious incident scenarios with their insurance teams to check wordings and gain a common understanding.”
Airmic board member Mark Dawson, who chairs the insurance steering group, said it was fair to say that many boards could do more to engage with insurance. He added, however, that it was unreasonable to expect directors to have a detailed knowledge of all the limitations that exist.
"It is therefore important for the insurance risk manager to provide oversight of the company's insurance arrangements to the senior management and highlight the risks that are insured and key uninsured risks, as well as reminding senior management of their responsibilities under the Insurance Act," he said.
He also urged them to conduct regular claim scenario meetings with insurers and brokers to test the efficacy of policy wordings and limits and then make adjustments where required."
Airmic, he said, would continue to provide support to members "to professionalise the purchase of insurance, enabling in-house professionals to have meaningful conversations with senior management on risk and insurance matters to improve knowledge and avoid surprises when claims occur."