COVID-19: BI policies not fit for purpose - Ludlow

The coronavirus pandemic is another example of why traditional business interruption (BI) insurance is no longer fit for purpose, according to Airmic CEO John Ludlow. Speaking to StrategicRISK, he said that a policy which had traditionally been designed to pay out based on physical losses did not reflect the modern world.

“We need to look at business interruption because businesses have moved on,” he explained. “They’ve moved from a physical presence to having intangible assets and traditional BI is based on and hooked on to property insurance.”

“We need to revisit business interruption insurance because it is not particularly fit for purpose anymore and it’s hasn’t been for a while. It’s just yesterday’s policy and you can buy little extensions but they all have different wordings in, and so insurers are terrified because they don’t know what they’ve covered and the clients don’t know either.”

Ludlow acknowledged that claims emanating from the COVID-19 pandemic, in addition to an economic downturn, could see commercial insurance rates harden further.

In February, Airmic - in partnership with German risk and insurance management association GVNW - acknowledged there was frustration from members over poor or late communication from insurance partners. Over half of policyholders surveyed said they were only partially satisfied or not satisfied at all with service from brokers.

“The insurers forced the hard market because they weren’t making any money and they could see the exposures ramping up,” he added. “They weren’t charging enough. They went into it not particularly willingly and not particularly well.”

“Now this pandemic has happened they are worried again, because they can see that businesses are doing all sorts of things that they didn’t used to do - they’ve changed what they’re doing in a very agile way - and insurers think they are going to get quite a lot of nasty claims coming out of that.”

“It’s not just in BI - it’s employers’ and D&O liability - and insurers are worried they are going to get hit with some big claims. At the same time you’ve got a shrinking economy so they think the premiums are going to be reduced.”

“My word to the insurance industry is think carefully and if you’re going to put rates up again, do it slightly better than you did it last time.”

Becoming a virtual organisation

Ludlow explained the steps Airmic was taking to become a virtual membership organisation during the pandemic. One benefit that is already being seen is the ability to attract a broader range of members, achieving one of the Association’s aims of increasing its regional focus in the UK.

“We’re actually going to come out of this stronger and we will be more diverse, which is what we’ve been trying to become for a while now. I think we’ll be more diverse regionally and we’ll get more global followers, because they can just dial in and access information, and all of this will bring richer perspectives and enable risk to get out of the silo.”

He thinks certain practices - such as virtual meetings and webinars - will continue to be appealing long after the current crisis. However, there will still be an important role for face-to-face networking and risk management conferences.

Airmic reached the difficult decision to call off the planning and preparations for its conference, which was due to be held in Edinburgh this June, due to concerns over health and safety.

“We will start planning some events, but they’re likely to be digital this year. Next year with the conference in Manchester we’ll be coming back bigger and better and it will be about networking, but also learning and development. There’s so much scope in such a great arena to hold a conference.”

While the pandemic is a major challenge for businesses, he thinks it is also an opportunity for risk managers to elevate their role. “By showing how they can be relevant and how important their work is, on a tactical as well as operational level by making their organisations more resilient, risk managers can demonstrate their value.”