There is an increased tendency for corporate insurance claims to be challenged with most disputes arising from a lack of understanding over what is covered by policies, according to Richard Ward, Chairman of loss adjusting firm Cunningham Lindsey.
In order to bridge the mismatch over expectations of insurance he urged buyers to do more work upfront to fully understand the coverage they have in place. Risk and insurance managers should also be open with boards about what they have, or not, covered through insurance, Mr Ward added in an interview with Commercial Risk Europe.
The ex-Lloyds chief executive also said that he expects increased M&A activity in the insurance industry to continue as the market grapples with the difficult operating environment. He said the consolidation is unlikely to result in lack of choice for insurance buyers and instead may lead to better innovation, sharing of best practices and improved service.
“It is interesting that talking to people generally in the market place there does seem to be a greater tendency to have challenges around claims…There are many factors you could argue are leading to an environment where it is getting a little bit fractious between the insured and insurer and greater challenges around claims,” Mr Ward told CRE.
These factors include increased compliance activity whereby insurers are challenging their claims department about payments and increased fraud because of economic and recessionary pressures, suggested Mr Ward.
However, he believes claims disputes are ‘nearly always around coverage and a mismatch between expectations of the coverage bought and that which has been sold’.
“Most disputes to my mind come down to a lack of understanding of what the insurer believes he or she is covering and what the insured thinks they have bought. Usually when things go wrong it is because of a misunderstanding. So transparency around policy coverage and wordings is absolutely critical. Loss adjusters do have a role to play to help the insured understand what the coverage is,” he said.
His simple advice for insurance buyers is to start the buying process early in order to allow time to read the policy in full and understand the coverage placed.
“The key to insurance, as I continually tell people, is read your policy carefully and understand exactly what your cover is,” advised Mr Ward.
Insurance buyers need to be upfront with management and boards where coverage is not in place, continued Cunningham Lindsey’s chairman.
“If you don’t do this there will be unspoken assumptions and that is a recipe for disaster. Everyone assumes you have coverage for x and it may turn out you haven’t. So you need spoken assumptions where everyone assumes you have got x coverage and you tell them yes we have got it, because you have read the policy and this is covered, or no we haven’t got it and this is why,” he said.
Moving on to the issue of growing M&A in the insurance sector, Mr Ward said he is not surprised by the level of activity and expects it to continue.
“There is pricing pressure and investment return pressure with no obvious end in sight, so now is the time to carry out M&A activity to drive out cost savings, diversify your product offering and in doing so deliver top line growth. So I am not unsurprised by the M&A activity and it is likely to continue,” he said.
“We have seen a raft of deals-ACE and Chubb, Tokio Marine and HCC and XL and Catlin-that all have cost synergies as a result of the deals. They allow the firms to drive out cost and increase turnover,” he added.
He pointed out that a lot of insurers are struggling with their exposure to the P&C sector, which has seen the most significant softening, and are therefore trying to diversify into other product lines. Mr Ward is sure this is ‘some of the rationale’ behind the ACE Chubb tie up.
He believes that the proposed ACE takeover of Chubb and M&A deals more generally will not overly hamper competition in the market place and may well lead to benefits for customers.
“I think there is sufficient choice in the insurance sector so I don’t think buyers should be concerned about loss of choice,” argued the ex-Lloyds CEO.
“M&A is delivering economies of scale, pooling of expertise and maybe through that you get more innovation, sharing of best practices and better service. These are the sort of things that people will be looking for through this M&A activity, but ultimately insurers will want to improve the performance of their company,” he added.