Making sure they have disclosed all material facts to underwriters is becoming more onerous and time consuming, say AIRMIC members, while lack of clarity about the requirements leaves them, in many cases, with the possibility of a contested claim.
In response, AIRMIC is now running a project to try to influence market practice over the next few months, which began with an online survey designed to reveal the scope of the problem for members’ companies. The responses to the survey revealed that even professional insurance buyers run into difficulties on these issues; 34 out of 110 said they had faced potential non-disclosure challenges in the past five years. In only half the cases, was the claim was settled satisfactorily and on five occasions it ended in litigation.
A number of members believe that insurers will argue non-disclosure when there are large claims. “With the significant changes firms are undertaking, simply to survive in the current market, the issue of non-disclosure I believe will be the way insurers will limit their exposure to future claims,” was one comment.
Lack of clarity about the requirements and the complexity of submissions are among the possible reasons for inadvertent failure to disclose some information. More than three-quarters said it was getting more complex and difficult to collect the necessary information; especially in relation to property and business interruption and significant risks and key vulnerabilities. Some property submissions run over than 200 pages. One-quarter of the companies responding operate in more than 70 territories.
One risk manager commented, “It seems virtually impossible in a large company to provide what would technically be full disclosure of all material changes and information, and changes during the year. Insurers also provide limited support/guidance on what information they would like to receive.”
Only about one-third of the members said they had an agreement with their insurers relating to non-disclosure or materiality. Requesting innocent non-disclosure clauses, working on long term relationships with insurers and increasing disclosure submissions are the main measures AIRMIC members are using to reduce their exposure to challenge.
