Claims set to be impacted by new insurance policy formats, warns leading risk manager

Insurers are predicting that the impact of the Covid-19 business interruption (BI) test case in the UK will have an impact far beyond the pandemic. Speaking at a Commercial Risk webinar on claims management sponsored by Belfor, Raymond Hogendoorn, global head of short-tail claims at AGCS, predicted there will be an impact on catastrophe events because of the ruling on trends clauses. “This is important for Covid-19 but also important for the industry,” he said. “The industry as a whole has to decide what to do. Do they want to follow that in their wording, which will have a pricing aspect or limit their own wordings? I have no idea,” he added. Mr Hogendoorn also warned that the greatest impact of the ruling will be on causality, which he said creates a wider approach than in the past. Mark Graves, EMEA claims head at Swiss Re Corporate Solutions (SRCS), added: “The test case has proven the level of uncertainty for everybody. Some of these issues regularly come up on claims but do policy wordings change?” He believes the ruling will start to drive more conversations around innovative products: “Customers want clarity. I do think there is a place for traditional BI but it may promote more innovation going forward.” Carl Leeman, chief risk officer at Katoen Natie, said he actually had some sympathy for insurers. “There were policies sold with pandemic coverage that insurers will pay out on. But if they have to pay out on all BI claims and they haven’t made reserves, then we could lose insurers and that will affect the whole market. We have to be careful that this doesn’t jeopardise the whole insurance market.” Mr Hogendoorn added: “I think the broker has a role to play. The perception of the insured does not always match what the coverage is saying. For example, we have some 6,000 claims in the US in which the policy clearly states there is no pandemic cover. What it tells me is that we need to be clearer in our conversations with clients.” But BI is not the only problem, warned Mr Leeman: “The whole Covid-19 crisis has sped up a lot of things that might have changed in the next decade. Renewals have not been fun for the insureds. A new phenomenon is that people who had difficulties in filling insured capacity were forced to take on insurers no matter what conditions, or no matter what the wordings. “So, you are starting to see people with different wordings on different layers. Claims-wise, that will have a big impact because it could be that a fronting insurer agrees that a claim is covered but others on other layers will not. If you don’t have a policy with a follow clause allowing the fronting insurer to decide, there could be a problem.” Mr Hogendoorn agreed, explaining: “The fact we have different wordings in different layers is something we recognise from the US, where it is more common practice. I never understood why we were on our own with a 22% share and nobody would give me a mandate to settle a claim with a client. “Then you realise everyone has different limits, slightly different sub-clauses and differing wordings. I would sincerely hope this practice will not be exported to Europe because it makes claims handling ten times more difficult.” Key for the future will be making claims run more smoothly. Martin Schachtschneider, head of business development at Belfor Deutschland, said: “It always starts with a notification – it sounds simple but for claims management you will need a team and early notification of an incident. “In the first hours of a claim there will be a lot of questions – clients will be in touch to see when service will resume, the board will call asking about the consequences. There will be a high demand for information at a time when you may have no light or power for the computers.” He said handling a claim will often require a new team to be created very quickly. “People will need to get to know each other, they will want to identify their role and their agenda, and then develop a plan on working together and who does what – all before the team starts to perform.” That has become much harder in the pandemic working environment, all the panellists agreed. Mr Hogendoorn admitted: “As a business that normally deals with low-volume but large claims, it took us time to get used to the new working environment. We were more resilient than we thought we were and did better than we expected. But it is an event that is changing the industry and the way we operate – I think that’s a good thing.” SRSC’s Mr Graves added that the challenge has been not just to manage new claims but also to remain focused on existing claims and making sure they are managed proactively. “The other thing I spend a lot of time on,” he said, “is the reserving question – it is very difficult to project forward, particularly given the various test cases. Some of our lines have had less claims while others have had more. It has been a question of future-guessing really.” However, it has not all gone smoothly, according to Mr Leeman, who said: “We have seen work happening around the clock but with less efficiency and sometimes surveyors, for example, seemed not to have easy access to needed materials. Also, there has been more and more reporting to upper management before anyone could make settlements.” Mr Schachtschneider argued “I would not say it is slowing down but it is a very different way of working. We were used to have meetings on site and parties could talk face to face and everybody could see the same thing at the same time. That’s different today. “We need to go out and collect data and share information in a different way. You have to be more detailed in sharing information at the moment and have slightly different conversations too.” Remote inspections have been crucial, said Richard Sheridan, director, head of corporate at Sedgwick International UK: “We already had those solutions in the business, but Covid-19 accelerated the adoption of that. Some people argued you needed to be on site and I would agree for a major claim but many smaller claims can be handled remotely. But it is also key to have access to online files and not rely on pieces of paper that might still be in the office.” Belfor’s Mr Schachtschneider stressed that leadership needs to be strong but also flexible to cope with differing, fast-flowing situations. “Someone also needs to keep an eye on the big picture,” he suggested, “and also you need the right authority – sometimes claims become bigger because no one has the authority to act.” Mr Graves added that communication is critical – even before a claim: “We spend time going through the policy and have policy walk-throughs before any claims take place. The major benefit is that it helps build trust but also hopefully, from a customer perspective, it is an opportunity to understand the policy. We also hold large-loss-scenario workshops, where often you find that the policy needs to be amended as a result of that open and transparent conversation.” Mr Leeman added: “As an insured, you should know what your policy covers. Rather than sending a surveyor to defend the claims, the surveyor should be an ambassador for the company. Too often they arrive and know nothing about the event or even your type of business.” Mr Hogendoorn admitted that within his own company, he has mandated that all claims go to him first before denial or settlement. “We are a global company and the one thing our insureds have a right to expect is consistency in the handling of claims wherever they happen in the world. With this event we needed a more global approach, which did slow things down in the beginning.” Mr Sheridan concluded: “It is about managing customer expectations and keeping everyone fully informed about how long it will take to deal with a claim.”

Claims set to be impacted by new insurance policy formats, warns leading risk manager

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