Business uninterrupted

Business continuity and claims management were the themes discussed at the latest StrategicRISK Question Time event, held in association with Marsh Risk Consulting. As the sun set over the Thames in London risk managers gathered in Marsh’s Tower Hill headquarters for the second time to discuss the issues at the forefront of their minds.

Contract certainty and non-physical losses were both raised as areas of concern. It was also established that the best approach to handle a large and potentially complex business interruption claim was to be proactive and to consult early on with insurers.

To begin with those gathered heard from Marsh Risk Consulting’s head of accountancy, forensic accounting and claims services, Caroline Woolley, who explained what risk managers should be thinking about before a loss occurs.

She urged risk managers to take a proactive approach to claims and encouraged them to develop a good understanding of their business’ operations as well as its revenue in order to help quantify potential losses before a claim comes in. “If the declared loss is too low you will be underinsured,” she warned.

Woolley also discussed standard business interruption policy wordings and exclusions. She advised businesses that rely significantly on third parties to consider extending their policies. Doing all these things correctly, she said, gives a company confidence that its insurance is priced correctly and will respond in the event of a major claim.

Understand the business

“To be able to understand the business interruption loss you have to fundamentally understand the business,” Chris Maurice, risk financing manager for BT group risk management concurred. “If you have not spent the time in your organisation finding out how it works you will not be able to get the policy wording that responds in the event of a loss.”

He also suggested that it is very hard and resource intensive to map interdependencies within an organisation. “Getting all the data together in a large organisation is very difficult,” he said. “Risk managers may have to make shortcuts and assumptions.”

Others also insisted that contract certainty was the key consideration. “Watch out for the politics within the organisation,” cautioned the meeting’s chairman, Marsh Risk Consulting’s leader of forensic accounting and claims services EMEA, Andrew King. “Decisions could be made at head office - which have probably got something to do with price - that cut across all the best laid plans.”

“Wordings tend to be added into policies but they are never taken out again,” Holman Fenwick Willan partner Paul Wordley said. “These could contradict what is already in the policy.” He suggested that companies stress test their policies by acting out claims scenarios. “Quite often this will flag up the main issues.”

Wordley recommended a different technique for measuring losses when it comes to making a claim. “All you have to work out is your output, ie how many units of production you have lost, and multiply this by the market price.” By using this method risk managers can eliminate a huge amount of effort used to measure business interruption costs, he said.

Chubb’s Europe, UK and Ireland claims manager Lynn George indicated that the best way to tackle some of these issues is to keep communications channels open and maintain a constant dialogue. When it comes to mitigating the effects of a loss, insurers appreciate clients that are innovative and flexible, she said.

The discussion progressed into the realm of non-tangible assets such as the brand and reputational impact associated with customer data losses. “How would you protect us?” a member of the audience asked.

“Technically, loss of goodwill is not covered by standard policies,” Wordley noted. “But it is possible to link this to loss of market share. We have made successful claims on this basis.”

“I don’t see a difference between data and property losses. I think it is a logical extension of existing covers,” Maurice said. “Getting the market to understand that is another matter.”

A member of the audience, who is a senior risk controller with a large multinational insurer, said that certain carriers do offer indemnity for cyber risks and non-physical assets. The difficulty, he said, is in quantifying the risks.

Post-loss issues

In the final part of the briefing, Marsh Risk Consulting’s UK leader of forensic accounting and claims services, Neil Greaves, urged risk managers to take a hands-on approach to handling the post-loss issues.

“Ultimately, a loss is determined by how well a company deals with the situation post-event. If you are proactive you will get a better outcome,” he said. “We always know the difference between a company that has a good business continuity plan in place and one that just has a document sitting, gathering dust on a shelf.”

He added that businesses should consider the long term impact of a loss. “A 12-month indemnity period may not give the business enough time to get back on its feet.”

Greaves cited an example of a business that has its licence to operate linked to a certain premises, warning: “If that premises is destroyed it could take a long time for the authorities to grant a new licence.”

The attendees’ attention was also drawn to AIRMIC’s statement of principles regarding the speed of settlement of large claims, an agreement reached with seven of the UK’s largest insurers in September this year. The main result of this was that insurers agreed to advance payments to cover reinstatement costs in order to get a company back up on its feet after a serious loss incident. In order to do that, the insurers demanded buyers provide them with good information and appropriate evidence.

In turn, buyers insisted upon claims preparation clauses within their insurance contracts that would help to pay for the increased resources required to submit large business interruption claims.

“Large organisations are very lean at the moment,” Maurice insisted. “A complex claim is a mind-bogglingly time-consuming process. Insurers have to accept it requires resources to do that. If they want a professionally presented, clean claim then a preparation clause has to be in there.”

PHOTOS: StrategicRISK Question Time