Business Interruption Coverage Concerns
Business insurance coverage is too complex, from contracts to claims, according to a consensus of underwriters, buyers and brokers who attended the third annual Advisen Property Insights Conference on June 5 in New York
Even simple settlements take too long, and there is too much of an adversarial tone hanging over the whole business insurance (BI) claims process, they said, noting the contrast to property claims, which were broadly praised as straightforward.
“It is important for us all to reiterate these issues to enable insurance companies to be able to go back and address buyers’ concerns,” said Gerry L. Alonso, senior vice president of claims at FM Global.
Alonso was a panel moderator at the event, which saw total attendance close to 300, split evenly among carriers, brokers, and buyers.
He also noted that the comparisons between BI and property claims are not absolute.
“Property damage is often straightforward, but there are complexities. BI should be science: You are dealing with net profit and fixed cost. How complex can that be? But science can be complex. Organic chemistry is complex, and that only deals with four elements.”
Reflecting on his own claims experience, Alonso added, “the theme of the conference seems to be how complex BI is, but really the lesson is keeping lines of communication open from contract through claims.”
Brokers and buyers concurred.
“There is an expectation by the market that contracts are read and understood,” said Duncan Ellis, managing director and U.S. property practice leader at Marsh. “The purpose of insurance is to put you back in the condition you were before the loss; what that condition was is often where the disagreement comes.”
While lack of coverage innovation was a complaint voiced by several buyers in the audience, one possible solution to the BI issue could be back to the future.
“In this, what we need is a return to some of the old contracts that we knew worked,” said David Finnis, executive vice president and national property practice leader for Willis North America. “We need to brush them off and tweak them, but we need to do something. It should not take a year to settle a BI claim.”
Price stability and contract certainty was another concern expressed by buyers.
“We just had a very successful spring renewal and in a soft market, we were able to get better rates,” said Courtney Osborne, vice president of insurance and risk management at Elad Group, a global real-estate firm.
“Still, we are concerned about price stability,” she said. “We know those rates might come back the next hard year, and we just don’t have the resources to absorb huge swings either way because we have loan covenants in place that run for decades.”
She and other speakers questioned the validity of CAT modeling in light of the big swings in rates and limits.
“We don’t use cat models,” Osborne said. “I know carriers use them, and we do have a lot of cat-exposed properties, but we do a lot of our own risk evaluations.”