AON Warns Agents that Insurance Companies are Getting Tough on Commercial Claims
An insurance industry article yesterday, Aon Voices Concerns Over Business Interruption Coverage, confirms that businesses cannot trust insurance companies to timely pay claims.
While I am sometimes criticized for criticizing insurers, AON is one of the world’s largest brokers of insurance to businesses. Here is the stinging quote regarding commercial claims handling involving loss of income and extra expenses from an entity in the know and in the insurance business:
Insurers are making it more difficult to make a claim under BI insurance by tightening policy wording, reducing the amount they are liable for at policy renewal and employing various tactics to lower the amount paid in claims and delay paying claims.
Agents can no longer trust insurers to sell comparable coverage when quoting products to clients. Some commercial insurance companies often try to get out of paying claims before a loss ever occurs by writing very subtle language which reduces coverage otherwise available in competing insurance products into apparently standard forms. It is “bait and switch” at the corporate level. This trend and the need to carefully review business forms of coverage was highlighted by the following:
Paul Johnson, regional managing director for Aon’s Asia Pacific risk consulting team said: “As companies have more ‘I wish I had BI cover’ moments, such as the Christchurch and Chile earthquakes, hurricanes in the US and volcanic ash from Iceland, BI insurance is increasingly recognised as a key form of protection for their bottom line.
“BI reviews are continuing to rise, but we are not seeing a similar correlation with claim payments. It is essential for firms to work with their broker and risk consultant to decrease any wriggle room an insurer may have to decline a claim.” (emphasis added)
I went to the AON website for more information on this topic. The presentation is here. Johnson indicated in part that “insurers are reducing risk transfer by limiting cover through wording changes” and lists various wording changes found in some policies. He also lists claims issues:
- Insurers pressure to low claims provisions
- Reduce Claims costs (Loss Adjusters, Accountants and Lawyers)
- Slow in making payments – retain cash
- Wording issues are more the focus than quantification
Regulators and legislators should note that this condemnation of claims handling comes from a senior manager of a very large insurance entity, not a consumer advocate. It underscores the need for strong consumer protection laws for individuals and businesses. The truth is that there are many in the insurance industry that do not play fairly and by the rules. We need laws that will hold those insurers accountable and protect the public. If insurers act unfairly to their largest corporate clients, imagine how they treat small businesses and individuals.
I read through the presentation. Many of the reductions in cover that were listed appear to be tightening of wordings in manuscript policies originally drafted by the broker.
These manuscript forms have been carefully drafted to subtly and materially expand coverage beyond standard company forms: these are common on large global accounts.
I suspect this isn't a shift in the carriers' intent, but rather an improvement in their collective underwriting due diligence.
Just as too many insureds don't read their policies, too many underwriters haven't carefully read the manuscript forms they're signing.