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

1. 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

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

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

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

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

6. 58 Fenchurch Street Business Unit/Tier 2 (Mandatory)| Market/Division/Tier 3 (Optional) | Practice Group/Tier 4 (Optional)Proprietary & Confidential (Optional) | Date (Optional)

7. Chile – the adjusters arrive Business Unit/Tier 2 (Mandatory)| Market/Division/Tier 3 (Optional) | Practice Group/Tier 4 (Optional)Proprietary & Confidential (Optional) | Date (Optional)

8. But Tim Thompson stays behind in The Habit Business Unit/Tier 2 (Mandatory)| Market/Division/Tier 3 (Optional) | Practice Group/Tier 4 (Optional)Proprietary & Confidential (Optional) | Date (Optional)

9. And Damian Glynn prepares for his next after dinner speech Business Unit/Tier 2 (Mandatory)| Market/Division/Tier 3 (Optional) | Practice Group/Tier 4 (Optional)Proprietary & Confidential (Optional) | Date (Optional)

10. So why has “the Dark Side” emerged ? Business Unit/Tier 2 (Mandatory)| Market/Division/Tier 3 (Optional) | Practice Group/Tier 4 (Optional)Proprietary & Confidential (Optional) | Date (Optional)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

27. Aon’s Innovative Proactive Model Global Rapid Response Loss Mitigation • 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 Claims Advocacy Loss Brokerage Resolution Risk Engineering Forensic Accounting Within 48 -72 hrs, Aon guarantees to have professionals onsite anywhere in the world Business Recovery Business Unit/Tier 2 (Mandatory)| Market/Division/Tier 3 (Optional) | Practice Group/Tier 4 (Optional)Proprietary & Confidential (Optional) | Date (Optional) 26

28. Vendors Restoration Contractor Building Contractor Architect/Engineering Roofing Consultant Industrial Hygienist Aon Rapid Response Loss Mitigation & Management Your Local Facility Operations Your Risk Management Dept Third Parties/ Insurance Co./ Media Your/Aon “One Voice” Managing Critical Information on the Ground Gives you time to run the business, not the incident Business Unit/Tier 2 (Mandatory)| Market/Division/Tier 3 (Optional) | Practice Group/Tier 4 (Optional)Proprietary & Confidential (Optional) | Date (Optional) 27

29. 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 Business Unit/Tier 2 (Mandatory)| Market/Division/Tier 3 (Optional) | Practice Group/Tier 4 (Optional)Proprietary & Confidential (Optional) | Date (Optional) 28

30. 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 Business Unit/Tier 2 (Mandatory)| Market/Division/Tier 3 (Optional) | Practice Group/Tier 4 (Optional)Proprietary & Confidential (Optional) | Date (Optional) 29

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

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

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