Claims up but cover bought down in financial lines claims broker

The strategy may have a positive impact on cash flow in the short-term, but, it potentially leaves these institutions under-insured, Marsh warned.

“The prevailing economic headwinds across Europe mean that firms are increasingly looking to buy the insurance coverage they need for the least possible cost. While this strategy delivers short-term savings, in the longer-term it may leave firms underinsured in the event of a claim,” explained Frédéric Boles, the Continental Europe Placement Leader for Marsh’s Financial and Professional Practice.

In certain lines claims notifications have risen by as much as 400% over the last four years, said Marsh. This rise has had an impact on insurance rates for financial institutions, where in 2009 rates for directors’ and officers’ liability insurance increased over 100% in some cases, the broker said.

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Marsh’s research also reveals that the lines between credit, investment and operational risk are becoming blurred, with firms trying to claim for losses under multiple insurance policies in order to maximise their chances of indemnification.

As a result parties are more focused on policy wordings and possible interpretations which can lead to substantial legal costs, Marsh added.

“The claims landscape for European financial institutions remains particularly challenging this year,” Mr. Boles said. “Claims negotiations have become increasingly tough and insurers are taking a firmer stance, as the value of losses has risen sharply in the last 12 months. Insurers are also under greater pressure from their clients to settle claims faster, enabling firms to mitigate their reputational and operational risks,” he continued.

“The insurance industry needs to be able to articulate clearly the value of these sophisticated and complex policies to buyers. In turn, European financial institutions need to map robust claims processes to improve the claims payment cycle. Increased co-operation among buyers, intermediaries and providers of insurance is critical to extract further value in these policies,” Mr. Boles added.