Business Interruption insurance "still a long way off meeting needs of industry"

Business Interruption (BI) is one of the most sought after yet elusive types of insurance for UK corporates, with buyers reporting uncertainty over what is covered and difficulties in getting claims paid, according to a report from Airmic. The BI Hurdles paper, written jointly with Marsh, identifies data as the key area where the expectations of underwriters and risk managers too often diverge.

The effectiveness of Property Damage Business Interruption policies has consistently been a top ‘stay awake at night’ in surveys of Airmic members, with 18% saying they had had a claim disputed, reduced or delayed in the past five years. Insurers requiring information that the risk manager does not have was cited as by far the most common cause of difficulty, named by 60% of those who took part in a survey during the research for the report. It also found that most BI claims take between one and three years to settle.

A particular bug bear is that insurance gross profit varies from that practised in the rest of industry and in accounting standards, making it very difficult for buyers to estimate accurately the likely loss of profit in any scenario. Only around one in eight risk managers had total confidence in the declared values of their BI insurance.

“Business Interruption is at the very heart of our campaign to ensure that commercial insurance remains relevant in a world where intangible risks are more and more centre-stage, and this report shows there is still a long way to go” said Airmic R&D Manager Georgina Wainwright. “If we can bridge the communication gaps that exist between underwriters and their customers, especially in the use of data, we can then go a long way to cracking this issue.” 

The report carries a series of recommendations as to how buyers can do more to help themselves under four broad headings: Ensuring efficient claims settlement; Selecting the maximum indemnity period; Purchasing relevant supply chain cover; and Determining the insured values and avoiding underinsurance. High on the list comes rigorous pre-placement scenario testing, involving brokers and underwriters.

Caroline Woolley, Global Leader of Marsh’s Business Interruption Centre of Excellence, commented: “Marsh is working with insurers to improve cover and create new, relevant solutions. BI is a critical issue for our clients and, while traditional property damage/business interruption policies remain imperfect, there needs to be more of a focus on pre-loss scenario planning, loss quantification and policy testing. This allows everyone to understand limitations of cover and explore potential improvements without the added stress of a claim hindering progress.”

The report was produced following the establishment last year of an Airmic focus group to examine BI. It is being sent to all members. Airmic thanks Marsh for working with them on this project.

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Read the Business Interruption Key Issues report here..