is there a role for broking firms in bi claims my ten years ( or so ) on the dark side andrew king...

Is there a role for broking firms in BI claimsMy ten years ( or so ) on the dark side

Andrew King B.Com ACA FCILA FUEDI ELAE

Head of Claims and Risk Accounting, Aon Global Risk Consulting

Business Unit/Tier 2 (Mandatory) | Market/Division/Tier 3 (Optional) | Practice Group/Tier 4 (Optional)Proprietary & Confidential (Optional) | Date (Optional) 2

Firstly…the housekeeping

The fire exits are at the back The views (and insults) expressed are my own and not necessarily those of

my current or former employers When I said ten years on the “dark side” I meant…..


Dark side career


Why is representing a policyholder called “The Dark Side” ?

Perhaps from the bad old days of 7pm rag trade fires But more likely from across the pond – “Goodies and baddies” Public adjusters almost certainly deserved it A term probably coined in Pine Street, New York City But, it is not a one way street when it comes to insults ……


58 Fenchurch Street


Chile – the adjusters arrive


But Tim Thompson stays behind in The Habit


And Damian Glynn prepares for his next after dinner speech


So why has “the Dark Side” emerged ?


Factors affecting business

Risk and risk management continues to have a high profile in companies - reputation protection is imperative and Boards of Directors discuss little else

Stakeholders, managers, business partners, auditors and regulators are all demanding more protective risk management measures

Customers absolutely demand resilience from their suppliers Regulation and red tape has increased massively and is now seen by some

as excessive and intrusive EU Directives such as on product recall have placed new risks on

companies New regulations on corporate manslaughter will add to the burden and may

affect reinstatement programmes and business recovery Businesses and their processes are increasingly complex, integrated,

global


Factors affecting business

The pressure to drive down costs has never been greater No spare manufacturing/process capacity – and 24/7 working No spare capacity in staffing terms, or expertise in major claims compilation Requirement to be seen to have successfully managed the crisis and

emerge stronger, fitter, and with reputation intact and if possible, enhanced Increasing transparency in business life (now also in the public sector)

means increased accountability and scrutiny


Factors affecting the Insurance Market

Downward pressure on premium income – still a soft market Substantial upward pressure on the actual cost of reinstating assets Complexity of the modern business model means that BI losses will

inevitably be large and will accelerate away if not enough attention is given. But the market has hardened – on the claims side.


FACSBuncefield Explosion


Harder claims market started emerging at Buncefield

Liability for the CBI claim for the world’s favourite airline was not conceded until over10 months after the incident – because there might not be damage at the suppliers premises.


FACSBuncefield Explosion


Major logistics operation supplying fast food restaurant chain

Buildings damage scoped and valued by insurers surveyors at a total reinstatement value in the sum of £3.1 million

Challenged strongly by insureds claims consultancy team whose surveying team had scoped and valued the damage at £10.6 million

Final settlement agreed at £9.3 million, or 300% higher than the original offer

Lowballing – the same as exaggeration ? Exaggeration above 10% is seen as fraud by some.


Recovery of uninsured losses

The failure to allow adjusters acting for the owners of Buncefield to agree measures taken and costs incurred on a WP basis led to a much more drawn out process years later

Many uninsured claims were compromised at significantly below their fair value by claimants who had had enough of the way the process was conducted.


Delay in start up

A polypropylene plant in KSA suffered a number of insured delays London Market reinsurers put together a team, including lawyers, who

through radical policy interpretation and “convenient” delay analysis calculated the claim to be nil.

London Market reinsurers then suggested that there might be something to pay and intimated that a WP settlement of $2 – 3 million might be possible

A claims consultancy team was then appointed and following detailed delay analysis and more rounded legal advice, a settlement in excess of $12 million was negotiated.


Other examples

Spurious pro-activity by insurers - more haste, less speed An inability or unwillingness to make adequate or timely payments on account

leading to delayed ordering of critical path items No organisation amongst the insurers team, or teams! A change of calculation methodology, late in the day Poor communication - a failure to manage expectations Inadequate reserving, for whatever reason Confrontation from day one Death by document request lists The reservation of rights letter Has TCF made any difference at all for commercial claims ?


Other examples - continued

Not committing to ICW expenditure proposals, even though the measures were included in the BCM plan presented to underwriters - second guess later

The ICW economic limit does not just apply to the production interruption period – the measure of reasonableness and indemnification is the potential effect on turnover during the MIP if nothing is done.

Treatment of increased costs incurred during the waiting period Loss in consequence of damage – a movement towards placing a USA

wording interpretation (driven by reinstatement) on UK worded policies (driven by turnover)


But brokers also contribute to the tale of woe

Let’s insure budgeted gross operating profit for this year - that ought to do it No specified working expenses actually specified No group coverage, but crucial group interdependencies exist Business model has changed but the coverage has not Insuring any business for twelve months only Not checking the calculations submitted by the client – although the column

of figures is headed “Insured Gross Profit” , experience shows that it may be worthwhile doing a high level check


So do broking firms have a role in BI claims

Yes, because:- Clients need expertise to help in the management and calculation of their BI

claims. Clients need to show that they have matters in hand Clients see the need for a level playing field Even some of the largest clients have downsized their risk management

departments.

The brokers role is far from being only a post loss role


Pre Loss

The major brokers are involved in the following pre loss activities:- Business Continuity Management Enterprise and Strategic Risk Management Risk Financing Actuarial consultancy Supply chain review PD and BI Reviews including calculation of MFL and NLE Underwriting presentations Coverage design Policy drafting and risk placement Wording checks Claims management planning


Effective claims management starts before any loss has occurred

Ensure that a robust, tested BCP plan is in place that is owned by the local management

Review insurance arrangements which must provide complete and adequate coverage

Pre appoint contractors, consultants and adjusters Be very clear about what will happen in the event of aggregate deductibles

being breached – do we really want to have to deal with three or four adjusting teams

Consider setting up a trust account to be ready to pay contractors Discuss and agree clear protocols for claims notification and management


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Claims Advocacy

Risk Engineering

Forensic Accounting

Business Recovery

Result: •Proactive•Unified response to client •On-site immediately understanding the situation•Relationship set early on•Establishing parameters for both insured and uninsured losses•More certainty

Within 48 -72 hrs, Aon

guarantees to have

professionals onsite

anywhere in the world

Loss Mitigation

Global Rapid Response

LossBrokerage Resolution

Aon’s Innovative Proactive Model


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Aon Rapid Response Loss Mitigation & Management

YourLocal Facility Operations

YourRisk Management Dept

Your/Aon“One Voice”

Third Parties/Insurance Co./

Media

VendorsRestoration Contractor

Building ContractorArchitect/Engineering

Roofing ConsultantIndustrial Hygienist

Managing Critical Information on the Ground

Gives you time to run the business, not the incident


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Result?

The right things are done from the very beginning All aspects of the loss mitigated Better information to make key decisions Business back to usual faster Less management time diverted away from the business A better and quicker financial settlement


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What Do Insurers Think?

Loss mitigation reduces the overall cost Initial work enables more accurate reserving Right information gathered at the time smoothes the claim process Maintains constructive communications and relationships Expectations are managed from the outset A good claims experience means a happy and retained client


Summary

Clients are running increasingly sophisticated and complex businesses. Boards of directors now spend more time on risk management than ever

before Risk committees look to their broking firm to help with a whole range of

activities to help them manage risk Clients increasingly look to hire expertise to help manage major claims The policy response and the claims outcome is thus the end result of a

whole series of pre loss decisions and activities, many of which are undertaken by broking firms

is there a role for broking firms in bi claims my ten years ( or so ) on the dark side andrew king...

Documents

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