Rush money

On 16 June, the Association of Insurance and Risk Managers (Airmic) was in a triumphant mood. Over recent months, its membership had been under mounting pressure as clients railed against cash-flow problems while waiting for the settlement of major claims. But that was now almost over. After negotiating with the UK’s largest commercial insurers and the Chartered Institute of Loss Adjusters (CILA), it was time to break open the champagne. The perfect solution at last had been found. And what was the result of this eureka moment? The Speed of Settlement Agreement.

Under this scheme, seven of the UK’s largest commercial insurers have guaranteed Airmic that property or business interruption claims in excess of £2.5m will be settled promptly. More importantly, regular payments will compensate for any potential cash-flow problems. The trade body points out that, before the financial meltdown, banks provided cheap interim payments to help companies shore up their business while they waited for a settlement to come through. No longer: clients now find it impossible to get bridging capital from this source except at prohibitive cost.

Airmic’s chief executive, John Hurrell, is confident the agreement will not only solve the problem but resolve a longstanding flaw in the claims process. “While we recognise that many insurers made interim payments, they were not necessarily geared to the actual cash-flow loss,” he says. “We thought that, on behalf of our membership, we should create a more structured approach to settling business interruption claims that would fill the vacuum left by the banks.”

ACE, AIG, Allianz Global Corporate & Speciality, AXA Corporate Solutions, RSA, XL Insurance and Zurich have signed up to the agreement in principle. The final wording is expected in the autumn.

Under the proposals, a loss adjuster will set up a cash-flow model after any event that is likely to cause a long interruption to a business. This will create a timetable for interim payments to ensure that a client’s cash flow remains similar to what it would have been in the absence of any loss.

Hit or miss

Hurrell is so optimistic the agreement will become a success that he believes a revived banking sector may find it difficult to tap into this market in the future. “I don’t know whether the banking industry will come back and fill that void again,” he says. “Maybe they will never need to, because the insurers will be doing such a great job in ensuring that not only the absolute amount of the settlement but also the interim payments are being processed and managed to avoid cash-flow problems.”

The jury is still out, however. Some question why the scheme is needed in the first place, arguing that insurers should already be taking care of any clients experiencing difficulties. “Obviously anything that helps clients to better understand the services they are receiving from their insurer, particularly regarding claims and the speed of settlement, is welcome,” says Biba’s chief executive, Eric Galbraith.

“I am, however, a little surprised that such best practice is necessary. Given the size of the seven Airmic insurance member partners that have signed up to the scheme, I would expect them to have embedded much of the best practice in their claims handling already,” he adds.

Towergate’s head of claims, Simon Gifford, is equally confused. “If insurers are serious about claims service, why would they need to sign a document to say that they are?” he asks.

Indeed, most partner members are reluctant to concede there are problems in their individual claims processes, insisting they are already carrying out the principles outlined in the forthcoming agreement.

XL Insurance’s UK and Ireland head of claims, Graham Lambourne, says it will reinforce what the industry does now, and will support clients with insurance payments and cash where cash flow has become increasingly important. Even Hurrell concedes the agreement is hardly groundbreaking.

Meanwhile, Zurich technical claims handler Tracy Jones admits the main benefit is in making the process a tad easier for clients to understand. “I think it is making what insurers already do more transparent,” she says.

All talk?

There is a niggling feeling within the industry that this agreement smacks of the emperor having no clothes. Last week, Insurance Times reported widespread dissatisfaction with insurers’ handling of claims, with many insisting that the drive to curb expenses had led to a clampdown on the cost of settlements (23 July 2009, page 22). Sceptics have pointed out that since the agreement is purely a statement of intent rather than a policy condition with penalties attached for non-compliance, it is merely paying lip service to the problem.

Aon’s head of claims, John Bell, agrees that it lacks teeth, pointing out there is little guarantee the initiative will come to the rescue of beleaguered clients. “We’re building a story out of nothing here,” he says. “Whilst we applaud the initiative … it will be interesting to see how it works. The current feeling is that insurers are taking a lot longer and scrutinising claims a lot more closely before accepting liability, and are reluctant to make payment until they are absolutely satisfied with the amount involved.”

Bell points out that insurers will be able to circumvent the agreement’s principles when there is no danger of punitive action. “They might willingly sign up to this but then impose their own barriers on how speedily those claims can be made, citing the onus is on the client to demonstrate the loss, rather than being proactive and offering what would amount to working capital.”

Lorega’s chief executive, John Sims, is equally underwhelmed, arguing that the agreement is unlikely to herald a radical overhaul of how things are now. “If insurers don’t adhere to these protocols, and yet there are no penalties if they don’t pay an interim settlement within a given number of days, it is not going to work.”

Good PR

So why bother signing it? Many feel that while the agreement may not provoke meaningful change, it does provide an excellent opportunity to boost an insurer’s public image. “Why would you not sign up to it? It would commercially naïve of you not to,” Gifford says.

Even Axa’s head of claims, David Williams, concedes that spin is involved. “If we’re honest, there is a degree of public relations. People still remember the times, now pretty much in the past, when insurers were appalling when it came to claims. Things took forever,” he says. “This hopefully means that Airmic members and their customers will not automatically assume they have an uphill battle with their insurers.”

However, he rejects suggestions that it is nothing more than a stunt, pointing out that it will be vital in smoothing over any problems in communications between insurers and other parties in the claims process. “We are looking at being more consistent. We will be looking at our people; how they behave and how they interact,” he says, “I would imagine we will be updating practice guides. And hopefully this will lead to a much less adversarial means of claims settlements and claims being speeded up generally.”

Meanwhile, Hurrell argues that the success of the Reservation of Rights agreement between Airmic and the seven insurers in 2008 set a precedent for this forthcoming agreement. Under this scheme, insurers agreed in principle against issuing a reservation of rights stating they were not going to cover certain losses attached to a claim within 90 days of receiving it. “We have asked members on a regular basis whether they have seen a change in practice from the insurance market and we have had a very positive response,” he says.

Furthermore, Hurrell believes the deeply embedded fear of losing face in front of clients will safeguard against any violation of the principles. “An insurer’s reputation is built on the basis on how they treat their clients,” he says. “If you sign up to a statement of principles and your action flies in the face of that, you can be sure that will get around very quickly.”

But amid Airmic’s fanfare, it is clear the verdict on the agreement’s worth remains open. And while it may improve clients’ understanding of claims handling in the long term, it is unlikely to revolutionise the process. “It is all about recognising the problems the customer has and doing all you can to help the customer get back on their feet. That is basic claims service,” Gifford says. “If you were an insurer who wanted to provide a much better claims service than anybody else, you would have already have done so. You don’t need a document to say that you are going to do it.”