I received this question which is not that easy to answer.
On more than one occasion I have come up against a competing broker who states to clients that Mark V is better than the Mark IV therefore even if the Mark IV terms are more competitive the client has been so bamboozled they believe it. What is your view, is the Mark V better than the Mark IV? If so, why is Mark IV mainstream and so very few brokers use Mark V? Discussions with underwriters are that the Mark IV is the preferred.
Mark (Name and email provided)
I think the best place to start is with a bit of history. The Industrial Special Risks (“ISR”) Mark IV Advisory was introduced in 1987 for two main reasons.
- In an attempt to stop the massive under declaration that was going on within the industry. This was happening as the test for co-insurance, up until that time, was on all assets across all locations. As such, the cost of doing a valuation on all the buildings, all the contents and the stock of a large client with multiple locations was greater than the value of most claims and so the test was not being done. The Mark IV fixed this by making the test at the location of the loss. In exchange, co-insurance was dropped from 90% to 85% on Material Damage claims. On Business Interruption it remained at 100%. As an aside, this was changed to 80% on both Material Damage and Business Interruption in line with Business Pack policies.
- There was a need for standardization. Reinsurers, insurers, brokers and loss adjusters were constantly being caught out by the fact that there was no standardization. By having one standard contract which could be altered by endorsement, made it better for all parties concerned.
By 1990, a number of errors in the 1987 Mark IV Advisory wording, as it became to be known, were identified. This lead to a new committee to review the wording and ultimately meant the introduction of the Mark V (Advisory) wording.
This, to me, is a much better worded document, in that it is easier to read, but it was a complete reshuffle of the sections and there were some major changes that brokers in the main did not like.
This led to two things happening. The first was, to me 28 important changes were made to the Mark IV wording to create the Mark IV Modified wording. One of the changes was the burglary losses had to be reported to the police.
The second was that a second version of the Mark V ISR wording, the Mark V Modified wording, was introduced which kept the structure but brought the cover back in line with the Mark IV Advisory.
In the research I carried out writing my 3 volume text on the Industrial Special Risks policy, I identified just over 200 differences in the 4 versions of the wordings. I prepared a table which is in Volume 3 of the ISR book set which shows all the difference.
So which is better?
There is no one answer here. Both policies are now over 20 years old and have stood the test of time although major changes have been or are currently being made to both.
Why there is no right answer is that neither is designed to fully protect any single industry let alone any single insured. The idea behind the policy is to be the foundation of a tailored policy that provides the required protection to the Insured while providing an adequate premium to the insurers accepting the risk. As such, there are, at last count, over 600 endorsements to the Mark IV and over 400 for the Mark V.
Both policies can be tailored by someone who understands the policy to provide the same protection as the other.
Across the market, I believe that there are many more Mark IV wordings in all its current variations in place and as a general rule of thumb I would say more people are comfortable with this wording than the Mark V.
Having said that, some brokers prefer the Mark V and are very conversant with it.
Sorry there is no simple answer here. Both can provide great protection if tailored to the clients needs. Both can leave a client unprotected if not tailored by a skilled professional.
There are three common things that can lead to problems. The first is to just continue on with the same coverage as last year. I see schedules that have not had the sub-limits and endorsements reviewed for years and they are no longer appropriate for that client.
Secondly, the Limit of Liability is set based solely on the Declared Value of a single location. There has to be adjustments for the additional benefits and possible escalation between the date of the start of the policy and when reinstatement of a destroyed asset finally takes place. LMI have a Limit of Liability Calculator on LMI RiskCoach and LMI PolicyCoach to assist brokers get this right.
Finally, where a broker simply copies quotes from one ISR to another. Particularly from the Mark IV to the Mark V or vice versa. The policies and endorsements are different and they need to be treated differently.
I hope this helps in your understanding.