Business Interruption Issues Series – Part 5 – Time Excesses – Part D – Possible Solutions
After addressing 3 common problems in time excesses last week, I return to the topic with some possible solutions.
What is the Answer?
I would suggest there are several answers to the problems of time deductibles, and would like to explore three with you.
The first is to replace the excess/deductible with a franchise. If the insured business is disrupted due to an event for a period less than the franchise of say 1, 2 or 3 days, then the loss will be at the full expense of the Insured. If it extends beyond the period of the franchise, then the entire amount would be met by the insurer. This would mean that the Insured would carry the risk for minor periods of disruption, but beyond that they would have the comfort of having full insurance subject to adequacy of insurance etc.
I appreciate the insurance industry need not be there to protect short term, what we call working losses. The cost of doing so in just calculating such losses often proving they are not real losses in any event but just delayed sales would increase the cost of business interruption insurance prohibitively. However, the cost of working out a time excess can be significant and cause the Insured to feel cheated. I know that is how I feel every time I put in a health insurance claim when I consider the premium I pay each year.
I would rather see the client get the amount rather than it go to loss adjusters and claims prepares trying to agree an equitable allowance.
Some underwriters are worried that an insured can manipulate the stop time and so get a claim paid. I think in disruption such as in failure of public utilities, or closure by public authority, the Insured has no chance to influence when the issue is resolved. As such, I do not see this as an issue. It has certainly not come up in the claims I have handled under business packs where time franchises are more common under high quality wordings.
The second solution is to apply a monetary deductible, which both the Insured and insurer know and understand in advance. I would suspect that this would be easier for the underwriter to underwrite and the Insured would be in a much clearer position as to the effect of the deductible in the event of a claim. It would also reduce the stress and claims handling costs following a loss.
The third alternative is simply a combination of the first two. The monetary deductible would apply after the franchise period had lapsed or it could be the “greater of”.
Space limitations have only allowed three case studies to be provided. Underwriters, claims staff and Insureds who lodged a claim following any business interruption claim with a time deductible can provide similar examples of complications arising from their experiences of the interpretation of time deductibles.
At the very least, time deductibles need to be reviewed to incorporate clear details in the policy as to how they should operate. Alternatively, they should be replaced with a franchise, a set monetary deductible, or a combination of both. Food for thought to improve what, in the main, is a very good product.