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Preface

We all know what ‘contract certainty’ means technically – that there needs to be a policy in existence at the start of the insurance. But when it comes to business interruption (BI), we think it would be a good idea to take the concept of contract certainty a little further.

Our concern is that there has been a lack of clarity for a long time now – for insurers, adjusters and customers – over certain aspects of BI policies. For example, there is often a big difference between the technical meanings for words in a policy and the way those words are used in everyday business. The way indemnity periods are worked out can be confusing and there are parts of standard BI policies that even the professionals have never agreed about. In these circumstances, its hardly fair to expect customers to have the right answers.

Because of the different schools of thought, the advice to Chartered Loss Adjusters from their Institute has been to take instruction from their principals. But this doesn’t change the fact that similar claims can end up with different outcomes, depending on the insurer’s interpretation of the policy. At best, this leaves us in the same fog we are in now – still confused, still uncertain. At worst, it can leave customers feeling like they’ve been treated unfairly, putting all our reputations at risk.

With this in mind, wouldn’t it just be easier – and perhaps less risky – if we were all more certain about what the words in the contract actually mean? We think so.

In June 2009, the Chartered Institute of Loss Adjusters (CILA) convened a seminar, involving a wide range of industry professionals, to highlight recurring and significant BI issues encountered in practice that would benefit from clarification in policy wordings. The group gave the CILA’s Business Interruption Special Interest Group (BI SIG) a mandate to identify problem areas within the existing BI wording and make recommendations about how to fix them.

May 2010 saw the issue of a first report and many of the observations made at that time are included here. That report was issued primarily to show that some interim progress was being made and it was entitled BI Wording Review Initial Report. In fact, this project is not an exhaustive review of BI wordings. It is an attempt to focus on recurring problems that are capable of being resolved by changes in policy wordings. There may be issues in the wordings that might be clarified but which rarely, if ever, cause a practical difficulty. Likewise, there are common problems with BI claims that cannot be resolved merely by a change in policy wordings. None of these issues therefore fall within the remit of this Report.

The following diagram summarises the approach we have taken.

The initial report was not exhaustive and more complex issues needed some deeper study. So with the support of the Insurance Institute of London, an ambitious project to identify and comment upon the more complex issues was commenced. A cross-industry team was formed to progress this and thanks go to everyone who gave of their time so generously.

This Report marks the culmination of three year’s work and addresses topics identified by the BI community and the CILA. We do not propose prescriptive new wordings. Nor do we want to throw the baby out with the bathwater. In fact, we believe that most of the existing BI wording works, most of the time. As a result, this publication highlights those areas where we think some clarification would help customers, insurers and adjusters and with contributors from across the industry we explore some fundamental procedural change where it is agreed it would be helpful to all.

Throughout, the objective has remained unaltered – to avoid similar claims giving rise to different outcomes depending on a particular interpretation of a policy wording. Clarity and contract certainty, where consistency in the claims response can be seen, is what we have tried to achieve.

While we have attempted to identify the issues that we believe would benefit from some level of change in as concise a manner as possible, we have tried to balance this with the need for a degree of discussion so that the need for clarity is clearly appreciated and justified.

We are aware of several wording changes, some of which were underway within insurance companies irrespective of this initiative, which have drawn from this work. We hope that this Report will assist consideration of further change.

This is not a finite undertaking. New circumstances and the changing face of the economy, both locally and globally, will demand an ongoing review process. New risks, which existing wordings may struggle to easily accommodate, will undoubtedly present themselves. This is something that has been clear over the last few years, and it is likely to continue. Even in the absence of significant new exposures, clarification is an ongoing process.

This Report does not claim to be exhaustive; it does, however, aim to deal with the most commonly encountered difficulties. There are many issues that remain problematic, for specifc market sectors for example.

In scoping this work, we have been mindful of the need to avoid being unduly prescriptive; we are not seeking to produce new wordings, but rather to identify issues benefiting from clarification, and have offered potential solutions as opposed to any specific recommendations. Contributors have been mindful of the need to avoid any anti-competiveness and we believe that this is a balanced and objective assessment of the issues we all face on a day-to-day basis.

We hope this is a useful and thought provoking document that will influence policy wordings in the future. Whether we have succeeded will be objectively tested by answering one question – will BI wordings change as a result of this (or the earlier initial) Report?

Damian Glynn

Harry Roberts