Business interruption do wordings respond to current business practice
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Business Interruption – do wordings respond to current business practice?. 2007. 1. Reference: LBIA 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?. Presenters.

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Business interruption do wordings respond to current business practice

Business Interruption – do wordings respond to current business practice?

2007

1

Reference: LBIA 2007


Modern business v current wordings

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 October 2007


Presenters

Presenters

  • Wordings – Diane Jenkins, Technical Director, Europe, Aon Mergers and Acquisitions Group.

  • Underwriting information – Steve Manville, AIG Vice President, Property Division, UK & Ireland

LBIA October 2007


Wordings

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 October 2007


Blundell spence agreement

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 October 2007


Example outsourcing

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 October 2007


Definitions

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 outsourcer’s premises

LBIA October 2007


Definition of premises

Definition of Premises

Any Premises, owned, occupied, utilised or used by the Insured or any contracted outsourcers of the insuredwithin 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 October 2007


Definitions1

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 October 2007


Definitions2

Definitions

The result of changing all the definitions is:

A VERY WIDE POLICY

  • A happy client!

LBIA October 2007


Suppliers extension

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 October 2007


Other issues

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 October 2007


Outsourcing underwriting challenge

OutsourcingUnderwriting Challenge

Steve Manville, AIG Vice President, Property Division, UK & Ireland


Can insurers respond

Can Insurers respond?

  • Barriers

  • Solutions

  • Market Response

  • Summary

LBIA October 2007


Barriers

Barriers

  • Appetite

  • Contract Certainty / ability to handle claims

  • Inability to understand the risk

  • Capacity

LBIA October 2007


Solutions

Solutions

  • Information

LBIA October 2007


Example risks

Example Risks

  • PD / BI £12m

PD

BI

BI EML

Outsource

Risk B

£2m

£10m

£2m

£10m

Risk A

£10m

£2m

£2m

£250k

LBIA October 2007


Solutions1

Solutions

  • Information

  • Wording

  • Appetite

LBIA October 2007


Summary

Summary

  • Barriers:

    • Appetite

    • Contract Certainty / ability to handle claims

    • Inability to understand the risk

    • Capacity

  • Solutions

    • Information

    • Wording

    • Appetite

LBIA October 2007


Can insurers respond1

Can Insurers respond

YES

LBIA October 2007


Questions

Questions

LBIA October 2007


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