LBIA Business Interruption – do wordings respond to current business practice? 2007 Reference: LBIA
LBIA 2 LBIA October 2007 Modern business v current wordings Agenda for today Consider how standard BI policies respond to modern business practices How would new policies be underwritten?
LBIA 3 LBIA October 2007 Presenters Wordings – Diane Jenkins, Technical Director, Europe, Aon Mergers and Acquisitions Group. Underwriting information – Steve Manville, AIG Vice President, Property Division, UK & Ireland
LBIA 4 LBIA October 2007 Wordings Contract certainty Do current wordings respond What about head office activities that do not generate revenue Should we still be relying on Blundell Spence?
LBIA 5 LBIA October 2007 Blundell Spence agreement Letter of intent issued by insurers Agreed that reasonable increased costs of working would be paid following loss of factory or head offices BUT Originally designed to apply to manufacturing risks Applies to own premises/activities No formal agreement – market practice How often do brokers request letter of intent? Extent of cover implied – would insurers pay where the office functions are outsourced?
LBIA 6 LBIA October 2007 Example - Outsourcing Example of Outsourcing Many outsourced activities do not generate revenue – no effect on turnover Need to consider special cover for non-revenue generating activities Use amended AICOW? Consider an R&D type wording? Consider how a standard wording responds even where revenue is affected by outsourced activity
LBIA 7 LBIA October 2007 Definitions Premises Different definitions appear in different policies but an example is: The word Premises shall mean any premises owned, leased, occupied or utilised by the Insured within the Territorial Limit" This is a wide definition and many policies will have narrower definitions Not sufficient to include outsourcers premises
LBIA 8 LBIA October 2007 Definition of Premises Any Premises, owned, occupied, utilised or used by the Insured or any contracted outsourcers of the insured within the Territorial Limit Very wide definition Will cover all premises owned, occupied, utilised or used by outsourcer Insurers may not be happy to give such wide cover!
LBIA 9 LBIA October 2007 Definitions Territorial Limit: The definition of premises refers to the territorial limit so needs to be right May need to be worldwide depending where the outsourcers have premises
LBIA 10 LBIA October 2007 Definitions The result of changing all the definitions is: A VERY WIDE POLICY A happy client!
LBIA 11 LBIA October 2007 Suppliers Extension Treat outsourcers as suppliers – specify limits Extends definition of Premises and Incident But some types of suppliers excluded e.g telecomms All the premises of the outsourcer need to be added Assess accumulation issues Clarity of cover Option to choose the correct sub limit Changes during the period of insurance
LBIA 12 LBIA October 2007 Other Issues Still need to check definitions of business, insured, gross revenue, territorial limits Subject to all other terms conditions and provisions of the policy. Warranties/conditions precedent Terrorism - Need to buy back worldwide cover if territorial limits are worldwide Subrogation Utilities extension
LBIA Outsourcing Underwriting Challenge Steve Manville, AIG Vice President, Property Division, UK & Ireland
LBIA 14 LBIA October 2007 Can Insurers respond? Barriers Solutions Market Response Summary
LBIA 15 LBIA October 2007 Barriers Appetite Contract Certainty / ability to handle claims Inability to understand the risk Capacity
LBIA 16 LBIA October 2007 Solutions Information
LBIA 17 LBIA October 2007 Example Risks PD BI BI EML Outsource PD / BI £12m Risk B £2m £10m £2m £10m Risk A £10m £2m £250k
LBIA 18 LBIA October 2007 Solutions Information Wording Appetite
LBIA 19 LBIA October 2007 Summary Barriers: –Appetite –Contract Certainty / ability to handle claims –Inability to understand the risk –Capacity Solutions –Information –Wording –Appetite
LBIA 20 LBIA October 2007 Can Insurers respond YES
LBIA 21 LBIA October 2007 Questions