Brokerage publicly backs Airmic’s call for buyers and market to embrace ‘fair’ RoR clause

Lockton said this week it is encouraging clients to use the 'fair' clause drafted by law firm Herbert Smith Freehills on behalf of Airmic to counter a 'worrying trend in the use of RoR letters by insurers in response to claims notifications'. In an interview with Commercial Risk Europe, Airmic chairman Nicholas Bailey urged his members to embrace the model clause. It is down to individual risk managers to make the most of the advice on offer, he said. However, both Lockton and Mr Bailey conceded the clause may need to be used as a starting point for discussions between insurer and insured over RoR concerns, adding that, in some instances, negotiations may need to take place before both parties accept a final wording.hideAirmic unveiled the model clause at the end of 2012 in a bid to halt the increased use of RoR by insurers and thus reduce some of the more severe claims problems experienced by its members. RoR enables insurers to reserve the right to refuse liability for a claim, or part of a claim, pending further enquiries. The wording's key facet is an agreement for a 90-day cooling off period following any insured's claim or notification of circumstance before an insurer can issue a notice to reserve its rights. It is hoped that any issue relating to the claim can then be sorted out during this period. Although Airmic accepts RoR is a legitimate tool 'under some circumstances', its members report that it too often becomes the default position on large claims. This week Lockton moved to back Airmic members' concerns and recommend its clients add a clause into insurance contracts to help deal with insurers' use of RoR. "Our experience is that insurers are reserving rights far too readily; some appearing to adopt it as the default response in relation to any high-value or complex claim notification. The situation is undoubtedly exacerbated by the ongoing economic conditions," said Graham Wynes, a claims advocate at Lockton. He referred to an Airmic member survey conducted last year in which 65% of respondents said they had received an unfair RoR letter from their insurer and 57% indicated that the matter had not been resolved satisfactorily. According to the survey, 35% of respondents had received at least one reservation of rights letter in the past two years. "This seems to suggest that certain insurers are reserving rights routinely, and often in inappropriate circumstances. These statistics come as no surprise," said Mr Wynes. And so his firm is standing firmly behind Airmic's new model clause and encouraging insurers to adopt its wording. "The suggestion by Airmic to add a clause to insurance contracts is a positive step in giving clients greater certainty around the reservation process, as well as speeding up the negotiations. In our view, the clause is fair and reasonable and we are recommending to clients that they add this to the contract, irrespective of the limit," said Mr Wynes. However, the brokerage will note with interest how insurers respond to this demand. It anticipates that in some cases negotiation will be required before a final wording can be agreed. The model clause should not come as any surprise to insurers, having been developed after consultation with Airmic's insurer and broker partners. According to Mr Bailey the association has received a 'very good response' from the insurance market over the clause. But there is only so much the association can do, he intimated. UK risk managers must now take the bull by the horns. "Now at the end of the day it is down to individual members to make use of the clause. You can lead them but you also need to encourage them to turn around and say to their broker or insurer 'here is the model wording please enact that or something similar'," said Mr Bailey. He admitted that some insurers will try and resist the wording and that solutions to the misuse of RoR may need to be solved through discussion with risk transfer partners. "Of course, in discussion there will be insurers who don't want to do it, so in some cases it might not actually be put in place in practice. When we issued our guidance (Statement of Principles) on RoR, rather than the new clause, I went to all of my insurers and said this is what I would like to get-one said we are there already, a couple said no and others put the wording in as it was, or a similar version. So at the end of the day it has to be down to individual negotiations between corporations, insurers and brokers," he told CRE. Airmic's clause is similar in principle to the voluntary RoR Statement of Principles published by the association in 2008 and referenced by Mr Bailey. But crucially it will be legally binding once inserted into an insurance contract, as opposed to the voluntary principles. The clause aims to protect both parties' rights during this 90-day period, enabling a free exchange of information, said Airmic, and this period can then be extended if required by mutual consent.

Brokerage publicly backs Airmic’s call for buyers and market to embrace ‘fair’ RoR clause

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