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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. 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?

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

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. Definitions The result of changing all the definitions is: A VERY WIDE POLICY • A happy client! LBIA October 2007

  11. 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

  12. 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

  13. OutsourcingUnderwriting Challenge Steve Manville, AIG Vice President, Property Division, UK & Ireland

  14. Can Insurers respond? • Barriers • Solutions • Market Response • Summary LBIA October 2007

  15. Barriers • Appetite • Contract Certainty / ability to handle claims • Inability to understand the risk • Capacity LBIA October 2007

  16. Solutions • Information LBIA October 2007

  17. 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

  18. Solutions • Information • Wording • Appetite LBIA October 2007

  19. Summary • Barriers: • Appetite • Contract Certainty / ability to handle claims • Inability to understand the risk • Capacity • Solutions • Information • Wording • Appetite LBIA October 2007

  20. Can Insurers respond YES LBIA October 2007

  21. Questions LBIA October 2007

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