Asian risk managers challenge insurers on BI cover

The risk manager delegate's blunt remarks received warm applause from the mainly risk manager audience who came to Singapore to attend the association's launch from all over Asia. His comments came during a debate hosted by Commercial Risk Europe Editor Adrian Ladbury about supply chain, business interruption and natural catastrophes that naturally focused upon concerns over the adequacy of BI coverage following the Japanese earthquake and Thai floods in recent times. Another leading risk manager at the event also pointed out that the policy wordings currently used by the market to cover this increasingly important risk are 'archaic' and suggested that the market should consider a radical simplification of coverage as soon as possible.hideDuring the panel debate, the risk manager who told the insurers to stop denying coverage after the event and blaming customers for providing inadequate risk information, said: "As a risk manager I am disappointed from a risk management perspective. It is impossible to give all the information. If the underwriter accepts the deal on the basis of limited information he can't say after the loss occurs that not enough information was given and deny the claim!" During the discussion the market experts who took part agreed that it should not really come as a big surprise to risk managers that coverage is now much more difficult to obtain for facilities that are built on flood plains that have now become obviously too risky. But the risk manager retorted: "It's the same thing on this discussion about building on a flood plain. If the risk was accepted in the first place it cannot be subsequently denied. This is a problem of accumulation, poor risk accumulation by the insurers. Don't blame the risk manager," he said. Danny Chan, Area Security Director for South East Asia and Australasia for Marriot International, was on the panel and said that the insurance market needs to 'go back to the fundamentals' in this topical area. Rob Tutchener, New York-based Global Head of Group Risk Financing for Rio Tinto, the international mining group, joined the discussion from the floor and raised the point about 'archaic' policy wordings. "The wording of these policies seems to be 300 years old. Why does it take two years to resolve a claim when it occurs? Isn't it about time that the industry really got its act together on this? Simplify it. You don't need forensic accountants and lawyers to complicate it all. This is an unprecedented challenge. Does any underwriter really understand what coverage has been given at the time?" he asked. Mike Wellsted, Director of Corporate Business at JLT Hong Kong, said that he understood his customers' concerns and suggested that pre-settlement clauses are part of the answer. "It is absolutely right to say that wordings are archaic but at least they are understood by the legal profession. You would have to say that they could be more simple. Two years to settle such a claim is completely unacceptable. The insurers are earning money on yours while this occurs. Pre-loss settlements are a partial solution," he said. Earlier in the debate John Dempsey, Managing Partner of leading forensic accounting firm Dempsey Partners that specialises in supply chain and BI risks and was heavily involved in the Thai floods, said that the bottom line is that insurance policies have not kept up with the rapid development of the global economy. "A long time ago risk managers decided to buy insurance against loss of profits and over the years more services have been bought in one form of BI or another. Things have changed a lot because of the global economy and companies are much more dependent upon one another. The supply chain has lengthened and become more complex. This is why it's a problem," said Mr Dempsey. "Insurance products have not kept up with the level of change. It used to be simple property damage but today we are looking at service interruption for utilities, data supply and some are even offering trade disruption. We are currently working on a claim based on water levels in Mississippi. Cyber risks are part of it as are political risks such as expropriation of oil assets in Argentina and even climate change," he said. Mr Dempsey said that the whole market needs to face up to the challenge and the impetus for change must come from the risk management community. "Unless policies specifically refer to the risk there is a large coverage gap. I see this as a business risk that the industry has not adequately addressed. Maybe companies believe they are properly protected but recent events have challenged that. My belief is that buyers ultimately provide the engine of innovation. The rest of us can respond but the first thing is for risk managers to identify the gaps," he said. One risk manager delegate confirmed Mr Dempsey's comments as he said that he had experienced one 'nine figure' claim that emanated from Japan that simply did not fit into the standard contingent business interruption terms. "Ultimately we were able to record 20% reimbursement of a nine figure loss which was basically a gift from the insurer. This is possibly becoming so complex it is not insurable," said the risk manager. David Gierski, SVP, P&C Underwriting Asia at AXA Corporate Solutions, described the Thai floods as a 'very harsh lesson' and said that perhaps the focus should be more on prevention and business continuity in this area. "Insurance is not a perfect tool. You need the entire business continuity planning and not just rely on insurance. You need more than that. The key is to gain understanding at the ground level. Mitigation is the best tool," he said. Mr Wellsted of JLT Hong Kong said that he met one risk manager recently whose company in the IT sector used 160,000 suppliers of which about 20,000 would change each year. "He asked me how on earth he was supposed to track that. However, I do fully sympathise with the insurers. The point I make here is at one point in time terrorism coverage was pulled out of property policies; that was not the right thing to do in my opinion. But I wonder if there is a 10 cents tax in every dollar on every policy to cover this worldwide we would have enough to cover CBI in the same way?"

Asian risk managers challenge insurers on BI cover

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