Airmic raises concern over claims uncertainty

In its Airmic News publication, the UK risk management association said that although initiatives have helped to make insurance contracts more robust, with particular success over contract certainty and the issuance of policies at the time of inception, buyers remain concerned as to whether insurance will provide them with the coverage they require.

Airmic’s stance against what its members see as an overuse of Reservation of Rights by insurers and the UK Law Commission’s proposals to reform insurance contract law suggests that buyers and their representatives are not entirely satisfied with current claims handling practices.

The risk management association therefore believes it must seek further information as to why expectations are not being met. Following discussions with senior claims directors at the large insurance brokers it concluded there are five main causes of disputes.

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According to the brokers, failure of buyers to disclose material facts due to inappropriate underwriting presentations or unfair representation of the risk, are key reasons.

A breach of often very simple warranties resulting in a loss, or it being more serious than anticipated, was also flagged. Common examples included non-fully operational sprinkler systems and doors not locked as required.

The brokers also said that inadequate levels of coverage, particularly common in relation to business interruption, cause buyers serious issues when it comes to claims.

Late notification of claims to excess-layer insurers was a key shortcoming for large corporate buyers in most classes, whilst in liability there was also a failure to notify primary insurers in good time.

And finally they said that a more ‘challenging approach’ is being adopted by insurers to the handling of claims. This has resulted, for example, in the more frequent use of Reservation of Rights letters.

According to Paul Hopkin, Technical Director at Airmic, the lessons for insurance buyers and risk managers are clear.

“Achieving contract certainty is not an end in itself. The insurance buyer needs to be sure that the policy provides the coverage that is required and that the remedies for any non-disclosure, underinsurance and/or breach of warranty are clearly established in the policy or in separate agreed claims handling procedures,” he said.

The senior broking claims directors all recommend that insurance buyers have clearly established claims procedures to ensure that there is good communications throughout the claims handling process.

“This will lead to the best achievable outcome for the insurance buyer. Scenario testing can be an important part of preparing for the large claim,” said Mr Hopkin.

Airmic said it will press ahead with high-profile initiatives to ensure that insurance policies perform in a satisfactory manner.