Serious deficiencies in corporate insurance arrangements - PwC

UK companies are exposing themselves to significant and unnecessary losses due to serious flaws in the way their corporate insurance policies are arranged, according to a new report.

The new study of commercial risk, carried out by the specialist researchers Mactavish and PwC, reveals serious deficiencies in how corporate insurance is arranged, leaving companies vulnerable in the event of a large loss and subsequent dispute with their insurer.

The report, based on consultations with over 600 UK companies and more than 100 insurers and brokers, shows that:

• 87% of insurance buyers do not understand the extent to which the duty of insurance disclosure is their responsibility or the consequences of failing to meet this duty.
• Two thirds of buyers (65%) at large companies do not review the materials used to arrange their insurance, and almost all have inadequate discussions with insurers and brokers regarding coverage.
• An increase in insurers questioning claims. The total number of Royal Courts of Justice commercial disputes, excluding bankruptcy proceedings less likely to relate to insurance, jumped by 45% between 2008 and 2009, with some related categories such as professional negligence disputes up over 100%.
• The quality of disclosure underpinning insurance is at best poor, sometimes shocking. - nearly all of the documents used to explain companies’ risks to insurers contained errors or omissions that could directly lead to a large claim being questioned. One high-tech manufacturer failed to provide its insurer with details about high-risk product end-uses, delicate testing work undertaken for third parties or the use of highly sensitive manufacturing techniques.

PwC governance, risk & compliance lead Richard Sykes said: “Many UK companies are unaware they are facing costly and damaging gaps in their insurance coverage. The risk that an insurance policy won’t pay out is not being recognised by boards. The lack of quality and in-depth information around risk exposure provided by companies to their insurers is currently inadequate and has left many businesses with unreliable and inappropriate cover.

"Companies need to make more informed decisions about how much risk they should retain or transfer, rather than simply seeking to minimise insurance expenditure. Insurance needs to move up UK companies’ agendas and become a more important part of their wider risk and capital-management plans.”