Wednesday, 12 June 2013
Airmic sets sights on archaic wordings
With a lack of claims certainty dominating the concerns of UK risk managers polled in Airmic’s latest member survey, the association has published a guide and model wording to neutralise the impact of basis clauses in insurance contracts.
Airmic conference exhibitor hall
This latest move to tackle what experts described as an ‘archaic’ warranty, forms part of Airmic’s ongoing battle to achieve fairer and more robust insurance contracts on behalf of its members.
Improving claims efficacy has received broad support from insurers and brokers, claim Airmic. Risk transfer partners speaking during the association’s conference this week recognised the need to remove doubts over the fundamental performance of insurance contracts.
The fear that large claims will not be paid because of innocent non-disclosure ranked top of corporate insurance buyers concern, according to a pre-conference membership survey by Airmic.
Claims-related issues dominate the list of ‘stay awake at night’ topics, with 52.6% of the 126 respondents citing ‘innocent non-disclosure of material information’ as being one of the five market aspects causing most concern.
Some42.1% flagged ‘delayed insurance claim payments’,30.7% ‘difficulties in handling large claims’,27.2% ‘inappropriate use of reservation of rights’ and 23.7% ‘increase in the cost of handling claims’.
A third mentioned the issue of ‘warranties and basis of contract clauses’, as a top five concern.
To tackle the issue of claims certainty Airmic released at its conference a guide to basis clauses to raise awareness among members and a contract endorsement to neutralise their impact.
It urged members to review their insurance arrangements in this area, warning that basis clauses are often buried in insurance contracts and can result in legitimate claims not being paid.
Basis clauses operate as a warranty that all information given by the insurance buyer at the time of placing insurance is correct, such that any minor factual error will discharge insurers from liability under policy—even if the error is unintentional and not material to the risk.
The guide and clause follows research by Airmic that found the use of basis clauses is far more prevalent than they had believed.
In its proposal to reform UK contract law, The Law Commission has recommended that basis clauses are abolished, but Airmic’s endorsement provides an immediate solution for members until the likely law changes come into effect.
“I would urge Airmic members to review their insurance arrangements as any change in law for business insurance is probably still some years away,” advised Herbert Smith Freehills LLP partner Alexander Oddy. “If their policies are subject to basis clauses, whether through proposal forms or the policy wording itself, they should liaise with their brokers and insurers to discuss removing the clauses at the earliest opportunity.”
In previous year’s Airmic has published model wordings to address concern over Reservation of Rights (RoR) and non-disclosure in insurance contracts having gained support from the market.
In this instance, because of the severity of the issue, it has published the guidance and clause before consultation. But initial response from the market has been positive, said Airmic.
Paul Lowin of AXA Corporate Solutions, UK commented: “We welcome the new Airmic guide, which is in line with the Law Commission’s recent review of insurance contract law.
Following that review, AXA Corporate Solutions UK has taken a pro-active stance and we will be taking action to ensure that our Property and Casualty contracts do not contain any ‘basis clauses’, and that any existing clauses are removed.”
According to John Hurrell, Chairman of Airmic the market has responded positively to the associations various contract certainty initiatives.
“There is good will in the insurance market and we don’t sense that insurers want to repudiate valid claims, but if wordings are clumsy they have a fiduciary requirement not to pay,” he said.
Given the nature of the market and with each side looking after its own interests, Airmic members and their representatives must continue to fight their corner, he added.
Paul Hopkin, Technical Director added: “We will continue the initiative of claims certainty. This is the ultimate issue with any insurance policy so we will continue to raise the awareness of our members, both in terms of non disclosure issues, basis clauses and also information relating to disclosure processes that our members should have in place. This one will run and run.”
Brokers and insurers speaking to Commercial Risk Europe this week put their weight behind the drive for improved claims certainty.
Insurers must do more to ensure product efficacy, said Charles Beresford-Davies, leader of Marsh’s UK Risk Management Practice.
“On reservation of rights or basis clauses—these issues that can frustrate a claim—in this day of age we shouldn’t be talking about clients concerns over the fundamental performance of a contract,” he said.
“The message coming from the risk management community is right. The insurance industry needs to do a better job of speeding up the time it takes to pay a claim and improving the certainty of collection,” said Julian James, President of Allied World’s European platform. “You cannot ignore the customer and we are sympathetic to their views,” he added.
Steve Hearn, Deputy CEO of Willis, said that pockets of the insurance industry do use ‘inappropriate language’ in contracts, which creates a reputational issue for the industry, he added.
The broker industry has a role in highlighting these issues but has been inconsistent in doing so—as has the client, he continued. “Contract certainty is not for brokers or insurers alone to solve—the client has a job to do there also,” he added.
For his part, Thomas Hürlimann, CEO of Zurich Global Corporate, said his company pays $5bn in claims per year and see very few contested claims. “I would encourage clients to call me if they have any problems,” he added.