LBIALBIA
Business Interruption – do Business Interruption – do wordings respond to current wordings respond to current
business practice?business practice?20072007
Reference: LBIA 20071
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Modern business v current Modern business v current wordingswordings
Agenda for today
Consider how standard BI policies respond to modern business practices
How would new policies be underwritten?
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PresentersPresenters
Wordings – Diane Jenkins, Technical Director, Europe, Aon Mergers and Acquisitions Group.
Underwriting information – Steve Manville, AIG Vice President, Property Division, UK & Ireland
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WordingsWordings
Contract certainty
Do current wordings respond
What about head office activities that do not generate revenue
Should we still be relying on Blundell Spence?
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Blundell Spence agreementBlundell 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?
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Example - OutsourcingExample - 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
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DefinitionsDefinitionsPremises 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
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Definition of PremisesDefinition 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!
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DefinitionsDefinitions
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
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DefinitionsDefinitions
The result of changing all the definitions is:
A VERY WIDE POLICY
A happy client!
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Suppliers ExtensionSuppliers ExtensionTreat 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
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Other IssuesOther 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
LBIALBIA
OutsourcingOutsourcingUnderwriting ChallengeUnderwriting Challenge
Steve Manville, Steve Manville, AIG Vice President, Property AIG Vice President, Property Division, UK & Ireland Division, UK & Ireland
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Can Insurers respond?Can Insurers respond?
Barriers
Solutions
Market Response
Summary
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BarriersBarriers
Appetite
Contract Certainty / ability to handle claims
Inability to understand the risk
Capacity
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SolutionsSolutions
Information
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Example RisksExample Risks
PD
BI
BI EML
Outsource
• PD / BI £12m
Risk B
£2m
£10m
£2m
£10m
Risk A
£10m
£2m
£2m
£250k
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SolutionsSolutions
Information
Wording
Appetite
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SummarySummary Barriers:
– Appetite– Contract Certainty / ability to handle claims– Inability to understand the risk– Capacity
Solutions– Information– Wording– Appetite
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Can Insurers respondCan Insurers respond
YES
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QuestionsQuestions