With all of the strain that companies’ physical supply chains are under (see “Breakdown”), it comes as unwelcome news that an important link in the financial supply chain—insurance—may also be nearing breaking point. Though no insurer has yet been laid as low as AIG, whose disastrous investments led to a series of multibillion dollar bailouts by the US government, many are sitting on plenty of toxic assets of their own.
So far, Aegon has been the only major European insurer to receive a bailout—€3 billion from the Dutch state in October. Although few, if any, insurers are expected to fail outright, corporate clients are nonetheless anxious about the certainty and speed of claims, says John Hurrell, chief executive of Airmic, the UK association of risk managers.
To this end, Airmic launched a three-stage investigation of the claims process last year, working with insurers and their corporate clients to produce guides for managing their relationship in turbulent times. The first project produced a report in January about the “hallmarks of an excellent insurance claims service,” which Airmic is now asking insurers to benchmark themselves against.
The second project, also now published, focused on disputes. Hurrell notes that many risk managers were complaining about an “increasingly routine practice” of insurers quickly reserving rights-that is, dispute coverage-on any large claim, leading to lengthy legal battles on seemingly straightforward claims. Airmic’s voluntary principles call for a 90-day ban on reserving rights on claims worth more than £2.5m (€2.7m). This would “make it easier to settle matters informally, with less need to involve lawyers,” the guide says.
The final stage of Airmic’s investigation is currently under way. Once a claim is accepted, the speed of payment from the insurer is increasingly critical, Hurrell says. Major claims can have significant cash flow implications, with banks traditionally providing bridging finance for insurance payments made in arrears. Needless to say, the banks’ role is now greatly diminished, so “there has never been a more critical time for things to be sped up,” says Hurrell. He hopes for guidelines to be released by summer.
Barry Jones, head of claims in the UK for Marsh, a broker working with Airmic on the project, notes that discussions about the speed of payments are in “early days,” with most policies still featuring “neutral” guidance on the timing of payments. Greater certainty about the speed of payouts would be welcome, he says: “It’s not that the insurer won’t pay. It’s about the insured gaining certainty about when it will actually happen.”