Airmic calls for urgent work on wordings to remove ambiguity

The Airmic leadership has called for urgent work to be carried out by all parties in the commercial risk transfer chain to deliver greater certainty and consistency in policy wordings, as policyholders grapple with big questions over what is covered under key coverages such as business interruption (BI) and cyber. John Ludlow, CEO of Airmic, yesterday focused on the increasingly ambiguous set of wordings that risk and insurance managers face when they seek to cover cyber risk. This will become an increasingly vital area as businesses of all shapes and sizes accelerate their shift to a more digital basis because of the Covid-19 pandemic. Cyber risk is rapidly on the rise as companies shift to remote working in reaction to the crisis, leaving them vulnerable to attack as criminals themselves shift strategies. The cyber insurance market was already changing before the pandemic hit as insurers sought to strip the cover out of standard property and liability programmes, and shift it into standalone policies to tackle the so-called silent cyber threat. Mr Ludlow said this leaves risk managers in a potentially vulnerable and uncertain position as they seek to ensure they are adequately covered for this critical risk. Improved collaboration between risk managers, brokers, insurers and even the legal profession to consistently define what is actually covered is urgently needed, he argued. “Ambiguity is bad but I think things run deeper than just that. I think we need to look at some of these emerging risks, and professional bodies can help define some of the terms used. America and the UK are often referred to as two great countries divided by a common language, and you can translate that straight into the insurance market, in cyber for instance,” said Mr Ludlow. “Can we please, please get together and sort out the definition of terms for cyber? Then I think you can start to write consistent policies. I don’t mind variety and diversity in policies because they aren’t a one-stop shop, but we think ambiguity needs to be got rid of wherever possible,” he continued. The Airmic CEO pointed out that once the Covid-19 crisis is over and the UK finally agrees its exit from the European Union, the focus will inevitably shift back to cyber. “Obviously with emerging risk there is always a bit more ambiguity, but we should all be working together very hard to get rid of it. Cyber cover has improved but it doesn’t mean to say development has finished. I think we have got to work like crazy to do that because once coronavirus and Brexit are done with, cyber is a big risk. The crisis that we are going through at the moment has accelerated the adoption of digitalisation strategies, so cyber risk is getting bigger and bigger, and is a key emerging risk to sort out,” he said. Julia Graham, technical director and deputy CEO of Airmic, added that wording ambiguity is equally evident in the current debate over the applicability of BI coverage for the pandemic. She pointed out that while the recent Financial Conduct Authority High Court ruling was largely in favour of clients, things were clearly not black and white and left some serious grey areas. The ruling also will potentially add further weight to insurers’ current efforts to accelerate the hardening in coming renewals, she suggested. “There is some unfinished business, including the US definition of what intangible BI cover is. That will affect some of our more sophisticated buyers. And I wouldn’t play up how much this is – it is a small percentage in the great order of things – but we know if more is paid, more will be potentially called in. So there could be an underlying threat to the profitability of the insurers involved and potentially a knock-on effect on everybody’s premiums going forward – small, medium and large companies,” said Ms Graham. “It will stimulate the need for better policy wording clarity. I think this is a good move because uncertainty is never a good thing, when you buy something and it isn’t what you thought it was. That can affect all sorts of buyers, from the small shopkeeper on the high street to the largest buyer, where wordings are ambiguous. We have work to do for everybody in that space,” she added. Mr Ludlow agreed that the pandemic BI debate stresses once again the need for less ambiguity and more clarity in wordings, especially for small and medium-sized enterprises (SMEs) that usually do not have a dedicated risk and insurance manager. “I think for SMEs this is good for the market, because it is a wake-up call for insurers not to leave ambiguity in policies and give false assurance to buyers. So, it is a timely, good reminder that ambiguity is not good. Insurance needs to do what it says on the tin,” he said.

Airmic calls for urgent work on wordings to remove ambiguity

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