Stream 4. Business interruption: traditional risks, new complexities

Transcription

1 Stream 4 Business interruption: traditional risks, new complexities

2 NEW COMPLEXITIES IN BUSINESS INTERRUPTION (BI) LONDON MARKET CLAIMS CONFERENCE 15 OCTOBER 2015

3 New Complexities in Business Interruption (BI) Key Issues in BI - Getting the Values Right. - Wide Area Damage/Supply Chain. - Cyber Cover. Impact of the Insurance Act - Duty of Fair Presentation of the Risk. - Remedies for Breach of Duty. The Future of BI Insurance - New Policies. - New Values. Questions to Consider at Your Round Table Q&A MARSH 2

4 Section 1 New Complexities in BI Key Issues in BI 3

5 Key Issues in BI Getting the Values Right: Policy Structure and Mechanics Gross profit/revenue or earnings? Increased costs of working (ICoW) Extension clauses = INDEMNITY? MARSH 4

6 Key Issues in BI Getting the Values Right: Is There an Issue? 40% of declarations are too low. Existing solutions to resolve: Declaration linked policies. BI reviews. Source: Business Interruption Efficacy: Five Key Issues, Marsh, February 2015 MARSH 5

7 Key Issues in Business Interruption Getting the Values Right: Issues to Consider Sales/Representative offices. Don t make anything! Work in progress factories. How much gross profit is allocated? Service provided from multiple locations. How to allocate sum insured to each location? Short period before total loss of business. If not up and running in two months, lose all customers. What are the contractual positions with your customers/suppliers? E.g. Paying for availability. MARSH 6

8 Key Issues in BI Wide Area Damage Source: Business Interruption Efficacy: Five Key Issues, Marsh, February 2015 Orient-Express Hotels Ltd (OEH) v Assicurazioni Generali SpA (2010) Event (not damage) caused the loss? Uncertainty possible claim restrictions to denial of access limit. Possible solutions: Wordings improvements. Discuss upfront with insurers. Loss scenario and policy testing. MARSH 7

9 Key Issues in Business Interruption Supply Chain Suppliers extension not sufficient Limits. Restricted perils (damage only). Direct suppliers (first tier only)? Watch out for territories. Alternative Solutions Damage and non-damage. All risks. Anywhere in the chain. Source: Business Interruption Efficacy: Five Key Issues, Marsh, February 2015 MARSH 8

10 Key Issues in Business Interruption BI coverage in Cyber Liability Policies MARSH 9

11 Section 2 New Complexities in BI The Insurance Act

12 The Insurance Act 2015 Duty to Make Fair Presentation of the Risk Means a business insured must: 1. (a) disclose every material circumstance which it knows or ought to know, or (b) failing that, give the insurers sufficient information to put a prudent insurer on notice that it needs to make further enquiries AND 2. Make the disclosure in manner that would be reasonably clear and accessible to a prudent insurer; AND 3. Not make a misrepresentation so that every material representation as to a matter of fact is substantially correct and every material representation as to a matter of expectation or belief is made in good faith. MARSH 11

13 The Insurance Act 2015 Exceptions to Duty of Fair Representation The insured is not required to disclose a circumstance, in the absence of enquiry, if: The insurer knows it i.e. the underwriters participating in the decision. The insurer ought to know it (employee/or agent knows and should have passed the information to the underwriter or it is held by the insurer and is readily available to the underwriter making the decision (e.g. surveyors, the claims team!). The insurer is presumed to know it (e.g. common knowledge and things which an insurer offering insurance of the class in question would reasonably be expected to know in the ordinary course of business ). It diminishes the risk. It is something to which the insurer waives information. MARSH 12

14 The Insurance Act 2015 New Proportionate Remedies for Breach A new regime of proportionate remedies for where there is a qualifying breach i.e. the insured has breached its duty to make a fair presentation of the risk: Breach is deliberate/reckless insurer may still avoid contract ab initio and keep the premium. Breach not deliberate/reckless: If insurer would not have insured the risk at all, it may avoid the contract ab initio but must return the premium. If insurer would have imposed different terms, contract is treated as if those terms were in place from the outset. If a higher premium would have been charged, the insurer may reduce the claim payment proportionately (but may not also charge AP). Effectively, average is back in certain cases! MARSH 13

15 Section 3 New Complexities in BI The Future of BI Insurance 14

16 Future of BI Insurance Current Model MARSH 15

17 Future of BI Insurance Future Model? MARSH 16

18 Section 4 New Complexities in BI Round Table Discussions 17

19 Roundtable Discussions Some Questions for you to Consider How will the Insurance Act 2015 impact the presentation of information for Business Interruption? How can business interruption policies be improved to cope with the new complexities of the business world. How should BI values declaration change to improve claims handling efficiency? MARSH 18

20 Questions and Answers 19

21 This PowerPoint presentation is based on sources we believe reliable and should be understood to be general risk management and insurance information only,. Marsh Ltd is authorised and regulated by the Financial Conduct Authority. Copyright 2015 Marsh Ltd All rights reserved