The unintended consequences of not honouring valid BI claims

Angry risk manager speaks out

At the Pan-Asia Risk and Insurance Management Association held last week in Singapore, one of the senior risk managers present angrily said during his speach that “Insurers must stop denying claims after an event, blaming lack of information given by the customers of the Insured when they were prepared to underwrite the risk in the first place”.

Of course this is easy said than done when the business interruption policy has a trigger that the loss adjuster acting for the insurer needs to ensure has been activated in accordance with the coverage of the policy. In other words, was the cause of the failure of a supplier to supply goods caused by an insured peril. When it is at the same time as a massive flood as was happening in Bangkok at the same time as the Bangkok based supplier was not able to supply it should be pretty obvious.

While my background is claims and this still is the bulk of my work, more and more I am assisting brokers and business owners in reviewing insurance programs and ensuring the covers are suitable for the risks facing the business.

Many a time, I see that there is no business interruption coverage and when I question this, the Insured’s Chief Financial Officer, Managing Director or some other senior manager advises that they had a small business interruption claim and it was denied by a loss adjuster or insurer when on a review of the facts it was in fact a valid claim.

It does not always have to be a small claim. The last one I was involved in was only last week and involved a claim of $700,000 where the loss adjuster dismissed the claim early in the piece by saying the Insured would only suffer delayed sales not lost sales. At the end of the financial year, sales were down as a direct result of the disruption and the bottom line loss was $700,000. In this case the broker did not think to engage a claims preparer to review the facts and advise on whether the Insured had a valid claim at the time. I am now assisting an attacking broker who was approached because the Insured feels very let down and is questioning the benefit of business interruption. This account is worth millions of dollars in premium and fees which is now lost to the holding broker. Literally a forty year relationship destroyed.

The worst part of all this for me is that the Insured’s board believes that business interruption insurance is a complete waste of money and no amount of pleading on my part so far will get them to change their mind. (What I do not know is how many other companies these directors are involved in and if they have taken the same decision with any others). To my mind the Insured’s entire business is now at risk. I have not given up as yet but am regrouping trying to think of a new approach to having them retain the cover.

Speaking with brokers at a industry conference yesterday, 4 brokers had similar stories causing them stress as they know their client’s entire business is at risk in the event of a major disruption but they cannot convince their clients who feel that having tested the policy, they believe it to be a waste of money.

So what is the cause? Is the problem the complexity of the policy? Is it that there was no loss in the first place but this could not be explained to the Insured? Is it the attitude of some loss adjusters and or claims officers? Is it a genuine lack of understanding of the policy coverage by some or all parties to the claim process?

I have seen examples of each but they all tend to result in the Insured electing not to insure this vital cover.

Another common issue that destroys the confidence in business interruption is that loss adjuster focuses on the material damage claim and only starts to look at the business interruption component of the claim when everything else is finished. Worse still, is when the loss adjusting firm wheels in a new business interruption adjusters, often from another state to look at the claim when the client is desperate for at least a progress payment to assist with the inevitable reduction in cash flow that a business interruption causes.

As there are fewer and fewer true business interruption experts working in loss adjusting houses this is becoming an increasing problem.

One of the greatest turnoffs of all for an Insured is when they policy provides claims preparation coverage, and the Insurer refuses to grant permission for the cover to be used. The Insured feel that the principle of utmost good faith has been breached, in their words, they are dudded by a policy that claims to provide coverage for something that they are not permitted to use. They do not know the intracies of business interruption insurance, they are time poor and genuinely need help and when they go to use business interruption insurance that has been touted as being so important, it turns out to be in their words a scam!

Clearly, clients need to be treated fairly.

Claims officers:

1. If you do not want to grant the assistance of a claims preparation expert to your clients then please have your product managers take it out of the policy. This would be better than to pretend to offer cover for something that is not there. This will then let then let the brokers know which insurers want to assist their clients and those that do not.
2. Please ensure that the business interruption portion of the claim is addressed from day 1, not at the end of the process.

Brokers:

1. Please do not let your clients flounder trying to deal with a claim themselves under a contract that they have never read, and hopefully will only have to deal with once in their lifetime and that even their accountant does not understand.
2. If you have worked with the loss adjuster before and he has done his job properly and acted promptly, has kept you and your client informed and genuinely assisted that is fine and all should go well. You can still have the final settlement checked if you want to be sure.
3. But what is clearly wrong and not acting in the best interest of your client is to leave a client with a loss adjuster who is new to you or worse still let you down in the past. Waiting and hoping the claim will go well is not fair to your client, the claims preparer and ultimately to yourself.
4. Please do not just accept an insurers or loss adjusters decision not to allow the appointment of a qualified and experienced claims preparer. What are they hiding. What message is being given to your client? What will the Insured do on renewal? Will they continue to take Business Interruption? Will they want to continue to deal with that insurer? Will they want to continue to deal with you?

Remember that 25% of clients who sustain a major loss and survive the experience, dismiss their insurer and insurance broker. The two primary reasons given are a) poor advice before the event and b) poor claims service.