Wordings: Loss adjusters publish long-awaited BI policy wordings

The Chartered Institute of Loss Adjusters has published the result of three years of research into Business Interruption policy wordings in a joint collaboration with the Insurance Institute of London.

The project, which goes to the heart of the issue of contract certainty so dear to Airmic members, addresses concerns that traditional wordings are unclear and have failed to keep up with business practice. The authors point out that there is often a wide divergence between the technical meaning of words and what they convey when used in everyday usage. Whether or not a claim is paid may come down to the insurer’s interpretation of the language rather than what was intended at inception.

The report was written by two CILA fellows, Damian Glynn and Harry Roberts.

“Our concern is that there has been a lack of clarity for a long time now – for insurers, adjusters and customers – over certain aspects of BI policies,” they explain in the introduction.

“Similar claims can end up with different outcomes, depending on the insurer’s interpretation of the policy. At best, this leaves us in the same fog we are in now – still confused, still uncertain. At worst, it can leave customers feeling like they’ve been treated unfairly, putting all our reputations at risk. With this in mind, wouldn’t it just be easier – and perhaps less risky – if we were all more certain about what the words in the contract actually mean?”

Among the many examples to be found in the publication, is “Gross Profit”. As they point out this can be calculated very differently depending on the chosen methodology.

In some cases, the policy refers to the Schedule to ascertain the list of uninsured costs. However, some Schedules do not contain any list, which effectively means that Gross Profit, for policy purposes, is not accurately defined pre-incident. In other cases, insurers pre-define Gross Profit, resulting in the policies not being tailored to the needs of policyholders. The result can be a wide gap between what the insurance buyer expects to receive by way of claim and what the insurer is willing to pay.

The publication, which includes a list of nearly 40 contributors, considers many types of wording under four different headings: The current position,What is the problem? What are the consequences? Potential solutions.

The solutions are by no means prescriptive, reflecting the complexity of the subject and the almost limitless number of circumstances that may apply. They do suggest wordings in places, but the key point is for the insurer, insured and broker to come to a solution that is clear and satisfies all concerned.

Despite the huge amount of work that has obviously gone into the research, it is only described as an interim report. The more complex issues, the authors say, need deeper study. Even it was the ‘final’ version that would not be the end of the story. The needs of the business world are in constant flux and what works today might not be as robust in a year or two’s time.

The CILA report. Business Interruption Policy Wordings, Challenges Highlighted by Claims Experience, can be downloaded here

A hard copy can be purchased from the Insurance Institute of London website, www.iilondon.co.uk