By: Richard Keegan | From the Adjusting Matters Blog Series – From Subsidence to BI and Beyond | Part 1 – Is there still room for BI Adjusters in UK BI Claims?
Early in my Business Interruption (BI) career I learnt that our role as Loss Adjusters is to work with Policyholders following insured events to restore their businesses, thereby providing the risk transfer they sought on purchase of the policy whilst evidencing the value of the product which our industry provides.
Additionally, the key for a smooth path to the resolution of a BI claim is to ride with the policyholder and their representatives through the process, reducing the potential of any nasty surprises at the end.
You will not be surprised then to learn that I am not a fan of remote claims handling which leaves the Insured unsure of the support they will receive from Insurers, and waits for the Insured to present their losses/costs for scrutiny after the Indemnity Period has expired.
On occasion when called upon in recent years to review UK property claims which have not gone well (usually that will be the opinion of both parties) and need some assistance to cross the line to closure, I have found an absence of a Business Interruption Adjuster from the process. That is the loss adjusting lead is being supported on the BI by the Insurers nominated Forensic Accountants, and for some reason the Lead Adjuster/Adjusting House/Insurer have judged the need for a BI Adjuster input unnecessary.
The result has been that some aspects of Policy Interpretation, Mitigation and Recovery have fallen between stools.
Incident Response
I have worked with some of the best Major Loss Adjusters in the UK, who have a good understanding of the structure of the BI cover, but from experience few of them would claim to be experts in the interpretation of the BI wording.
Indeed, in the heat of the immediate response to a Major Loss event, the Property Adjuster who is operating as Incident Manager for the Insurers, have their time dominated by causation investigations, establishing coverage, and reserving. They are unlikely to have the time to be scrutinising the BI cover.
Policy Interpretation
It is simply not viable to delay a detailed review of the Business Interruption coverage following a Major Loss when the Insured needs to take action to protect the business and the jobs of their staff.
For Insurers to be able to provide the Policyholder with the best value from the insurance cover which they have sold, Adjusters who have the skillset to be able to untangle the BI coverage issues and apply them to the loss scenario in real time are required. Additionally sufficient command and clarity to enable Insurers to make prompt and correct decisions on policy liability is also a must.
For the Policyholder to have a business at the end of the Indemnity Period which is equivalent of that at the time of the loss, the intangible assets of the business need to be protected, and to do so often requires financial commitments. This is particularly important on the SME market where the Insured are less likely to have sufficient funds to be able to act independently of support from Insurers.
Mitigation
Immediately post loss the response of the Policyholders can vary from those who have well practiced Business Continuity Plans which have been put into action to others who are fire fighting each unforeseen issue as it arises with various levels of success.
In these variety of scenarios the BI Adjuster will assess the validity of the strategies but also the strength of the Policyholder management team to deal with the task of restoring the business whilst mitigating the immediate trading losses.
The BI Adjuster uses his experience to ensure that discussions explore the potential mitigation strategies, the reasoning behind discarding some and acting on others, and should affirm to the Policyholder the strategy agreed along with what level of financial support is to be provided by way of Increase in Cost of Working (ICWs).
There is no substitute for undertaking this exercise in real time, often confirming the financial support when the impact of the expenditure on trading results is not 100% certain, which importantly provides the Policyholder with the assurance that the cost of the strategy will be supported by Insurers.
Absence from the process leads to Insurers having a reduced influence on the financial outcome of the loss event. Retrospective review is usually hindered by the absence of collecting real time information necessary to evidence the decisions, and leads to Policyholder dissatisfaction if they are advised that money spent in an attempt to mitigate the loss will not be refunded.
Recovery
Managing a recovery relating to a BI loss can be far more complicated than a recovery relating to asset damage, and can go horribly wrong if not provided with regular attention.
A letter of notification to the third party from the Lead Adjuster in the initial stages followed by the submission of a BI recovery claim following settlement of the BI Claim with the Policyholder can significantly diminish the balance recovered.
The balance recovered is likely to be further depleted if Solicitors who have no prior involvement in the loss event are trusted to present and argue the BI quantum claim.
As BI Adjuster my aim is to engage with the Third Party Insurers and their Adjusters throughout the process. Invite them to the site meetings so they understand the business, the physical damage, and the interruption features. Give them opportunity to question mitigation strategies in real time and share loss calculations before the first party claim is concluded.
This strategy takes effort but provides better financial settlement outcomes, earlier settlement, and overall lower Adjuster/Legal costs for Insurers.
BI Claims handling Trends
In the 21st Century Policyholders’ businesses have moved almost exclusively to electronic bookkeeping which provides information which was previously not economically available in the event of a loss. Furthermore since Covid and remote working from the office being more accepted, the same logic appears to have spread to those adjusting BI claims.
This has led to notable trends by the Analysts performing the calculations:
- They have not walked the floor with the Policyholder to fully understand the qualitative features of the business which in turn drive the interruption features,
- The numbers are given priority due to their availability,
- A standard loss calculation model is adopted, without consideration of how the contractual obligations of the BI insurance policy differentiates the loss calculation from a damages claim.
Fair Value and Good Customer Outcomes
Noting the trend for a remote style of BI handling there is an increased opportunity for Analysts to produce BI loss calculations which are not reflective of the Indemnity due to the Policyholder from the BI insurance.
Additionally the level of analytical review and resources dedicated to it can overpower smaller Policyholders and/or be provided with such a level of assuredness in the correctness of the calculation presented that Policyholders accept BI settlements which are below those due.
In August 2024 the FCA published their Thematic Review (TR24/2) calling for Insurers to make sure their customers are getting fair value whilst confirming there are too many examples of Insurers lacking the correct information to ensure that their customers get consistently good outcomes.
As a result there is a need for BI Insurers and Loss Adjusting houses to ensure that the claims handling pathways deployed provide sufficient resources to adequately investigate BI claims in order to avoid the negative outcomes highlighted above.
Summary
The discussions highlights a number of issues where duties which would be performed by the BI Adjuster are falling between stools and not being picked up by the Lead Adjuster or the Forensic Accountant. These relate to policy interpretation, mitigation and recovery aspects, all of which will be material to the net underwriting loss, the professional costs, and the value received by the Policyholder.
Furthermore the trends relating to increased availability of financial information, more remote handling, a focus of working from the financials rather than from the business activity, are increasing the risk of missing key interruption features. Then producing BI loss calculations using house templates without skilled policy interpretation leads to calculations which do not reflect the Indemnity due under the policy.
The above said the involvement of a BI Adjuster is not always financially beneficial to the Policyholder, but hopefully the Policyholder will have early clarification of the level of financial support available from Insurers including certainty of funding for mitigation strategies.
Let us remember the BI Insurance is sold as a risk transfer device, where the best outcome for the Policyholder is to receive early clarification of the scope of the cover available, assistance in minimising losses, commitment to fund mitigation strategies, and interim payments to keep the business cash neutral.
For Insurers, they deserve a service which extends the correct support to their customer to demonstrate the value of their product, ensures losses are controlled including recoveries, and ensures that claims pathways selected are designed to provide consistently good customer outcomes.
From my experience BI Adjusters and the role they play is a major factor in seeking to achieve these goals when dealing with a BI loss, hence in conclusion I believe that specialist BI Adjusters remain very relevant but sometimes overlooked in the current claims market.
