Good cover can save you from a titanic disaster

By Adam Bernstein, Tuesday 28 May 2019

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Selling physical product is generally an easy process. A customer wants an item, buys it and walks out of the store holding their purchase, their need satiated. But insurance can be a different proposition entirely being an intangible that in most cases is expensive and (hopefully) rarely used.

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It’s not helped that for some, the reputation of the insurance industry is one of odds being stacked against the insured through contract terms. It’s hardly surprising then, that some bosses cut corners when seeking cover.

The reality is that any business without proper insurance is sailing into uncharted waters and relying on good luck that it doesn’t run aground. Either it’s playing fast and loose with regulatory demands for insurance, or it’s hoping that incidents never occur – which of course, they do.

A changing market

Insurance is as much a burden for printers as it is for other sectors. However, Steve Walker, commercial products manager at the BPIF, says that to some extent, the sector has been lucky in that “the market has been very soft... for as long as anyone can remember.” He says that the market used to be cyclical and would harden, meaning insurers could increase prices, “but this hasn’t happened recently, and buyers have benefited – there doesn’t seem to be any end to the soft market and insurers are starting to see this as the new norm.”

While it may be a buyer’s market, changes in markets, machinery, and regulation have all altered the insurance landscape. Chris Ives, a principal associate in Insurance and Reinsurance department of law firm Eversheds Sutherland, reckons that “the single biggest factor driving change in the insurance sector – in common with many other sectors – is technology and the growth of ‘Insurtech’”.

He explains that “new technologies are emerging [all the time] which impact on every aspect of insurance. Analytics now allow insurers to undertake more refined and tailored assessment of risks, which for some means lower premiums, permits new methods of distributing insurance products and lets insurers embrace technologies such as ‘blockchain’ to allow claims to be assessed and paid more quickly.”

Change has also come in the way that the insurers are funded. Just as alternative methods of raising capital such as crowdfunding have helped other business sectors, so it is encouraging growth in Insurtech start-ups who are prepared to challenge more established ways of doing business. All of this, in Ives’ view, means, in theory, “more competition and innovation which should be better for insurance buyers, leading to broader cover, lower premiums and a slicker claims experience.”

Naturally, Brexit is bound to be a concern for business. However, businesses need not be worried as the insurance industry is, says Insurance Business Magazine, “generally well-prepared” as it quotes a report by ratings agency AM Best.” The sector recognised shortly after the 2016 referendum that valuable passporting rights, which allow UK-based insurers to carry out cross border business in other EEA states, would be lost. The industry has taken steps to continue serving customers if and when Brexit occurs, a point echoed by Walker who says that “the market doesn’t seem to have seen any changes due to Brexit.”

And with another note of reassurance, Mike Hallam, head of Technical Services at the British Insurance Brokers Association (BIBA), says that Brexit’s ultimate impact on insurance products will depend on what is eventually agreed (or not): “Green cards, for example, may need to be issued for vehicles driven outside the UK, and any company that has cross-border trading may also see changes to the way it trades and supply of raw materials/stock may become more costly and difficult to source.” Either way, he’s suggesting that there’s no need to panic as insurers have the matter in hand.

Necessary insurances

Those with an ounce of common sense will be very aware of the obvious insurances that are necessary. The starting point should be, as Hallam emphasises, those insurances required by law – “this includes employers’ liability and motor insurance if the firm has vehicles”. He adds that firms are also required to have regular inspections carried out if they have items such as fork lift trucks, ventilation plants and lifts.

But to fully protect any business and its employees he also recommends other insurances including property, business interruption, public and products liability, professional indemnity, legal expenses, cyber, personal accident and sickness, trade credit, fidelity guarantee and money insurance. Specifically, for print, Hallam urges firms to think about insurance for offsite stock cover, inching and crawling risks, breach of copyright and confidentiality, libel and slander, computer and machinery breakdown, operator error and artwork cover. 

Walker covers off some of these insurances too but adds directors and officers policies and employment tribunal cover following the scrapping of tribunal charges in 2017.

Ives says that as printing firms may also have a design responsibility to customers they ought to also consider taking out professional indemnity cover.

In just observing the market, Walker has found that “recently there has been a greater emphasis in the use of cyber protection policies, particularly as high-profile cyber breaches have been in the news.” From Ives perspective, “any business which stores personal data should consider taking out cyber insurance covering the risk of loss of that data.”

Allied to the increasing rollout of technology is the emergence of 3D printing – a very interesting area from a legal and an insurance point of view. 3D printers – and other traditional printers that are web-enabled – use software which could involve a hacking risk, another good reason to acquire cyber insurance. While Ives notes that 3D printers can reduce manufacturing costs, “there are liability issues if the printer produces defective parts or final products giving rise to an issue as to whether liability should sit with the manufacturer, the designer of the software or the end user creator.” Could this be a product liability risk or a professional indemnity risk? It’s not always be a straightforward question to answer and it’s one that requires a detailed understanding of the risks faced in any given case.

Consider every eventuality

Insurance, by definition is designed to cover an agreed risk. By extrapolation, it’s central to the process that a business understands the risks and exposures it faces, to consider whether they are insurable, whether it wants to insure them and/or whether these exposures can be passed on to other parties.

Ives illustrates the problem: “We’ve previously acted on a claim for an ink manufacturer, with the ink being used by a packaging manufacturer. The end products were alleged to be defective due to the ink and, because the client had not fully understood the product liability risk which it faced, it had issues persuading its insurer to cover claims.” His advice is simple. Think about the business from every angle and consider even the unlikely.

Premiums can be lowered

The question of how to lower an insurance premium is as long as is it tall. A good broker, as an intermediary, will be well placed to advise on the risk management processes which firms can engage with to reduce premiums.

Hallam explains that “insurers now consider many factors when rating a risk which will vary according to the cover required. The most prominent are the risk in terms of the nature of trade and size, location and construction of the premises and claims history.”

Of course, complying with health and safety legislation, having a documented regime, will also be taken into account by underwriters when setting premiums. And as Ives knows from experience, a key step to making savings is to “transfer less risk to the insurer by taking a higher excess.” This is a point echoed by Hallam. He says “insurance is about risk-based pricing which means the lower the risk to insurers [of a claim] the lower the premium will be to the buyer.” 

As to how the risk will be identified, Hallam says that this may involve proposal forms, surveys, checklists and documentation. “If it can be demonstrated that the business is well run with a good claims record and all risk assessments are up to date with a robust business continuity plan then generally insurance placement will be smoother.” He adds that the installation of approved security features may also attract discounts from insurers.

Another option, for print at least, comes from Walker who notes that the BPIF’s health and safety ‘health-check’ can be used as evidence that the site has gone beyond the standard requirements. He says that any one of number of factors can affect the cost of insurance such as the claims record of an insured business as well as the risk of claims arising generally – “importantly, if a claim is made insurers will want to see that lessons have been learnt to minimise the risk of similar incidents arising in the future”.

Ives adds that cost can also be stripped out of the process by purchasing any one of a number of vanilla insurances directly. However, for those with complex needs and more complicated risks, the suggested route is an insurance broker: “As lawyers, we often work alongside brokers in negotiating improvements to insurance policies and advising on the liabilities which a particular business may face.”

It’s quite apparent that those seeking to lower their premiums should aim to work with a good broker; a point advanced by Walker. To illustrate what he means he gives the example of professional indemnity insurance: “It’s debatable whether this is really needed, and it may be the customer just wanting belt and braces [cover]. A reputable broker would be able to advise on this.”

Is a broker essential? That, reckons Hallam, depends on your view: “Whilst cover may be available either direct from an insurer or a bank it must be remembered that they only sell their own products and are usually unable to provide independent advice.” He says that most commercial insurance is placed through an insurance broker; they are the agent of the client which means they owe a duty of care to provide independent advice on a suitable policy and they can also offer greater product choice by searching for relevant products and markets. 

However, careful choosing of a broker is important though and Walker cautions here against using a broker without the right experience... of print: “The important thing for any company is getting a cover that’s a broad as necessary [for] a reasonable price [from] a company that has industry knowledge.” He says that there’s no point going for cover that underestimates the likely impact of an incident because the underwriter undervalues the cost of printing machinery.

But in such a soft market, Walker reckons that control of premiums is in the hands of the customer. By this he means that they should shop around – “with the proviso that they compare like with like – lower premiums are of no use if the company refuses to pay out or undervalues the risks.” Even so, Hallam advises undertaking a “regular review of insurance as things change over time such as the size of a business which may mean a different insurer may be more suitable.”

Rays of light

Until the bringing in of the Insurance Act in August 2016, insured firms bought based on declarations made and premiums paid. But there was the potential for a whole policy to be declared void because of a simple mistake when completing a form or forgetting a fact. 

However, the Act made some notable changes for the better that allowed for the suspension of parts of a policy until a contract term is complied with (previously this could have led to policy cancellation); making clearer how incidents of fraud are dealt with; and a new process called ‘fair presentation of risk’ that defines what an insurer must be told when a policy is bought, altered or renewed – insurers are now required to respond proportionately rather than automatically voiding a policy.

In simple terms, the Act introduced more burdensome obligations on insureds to disclose information to insurers with the quid pro quo that insurers were generally less able to avoid paying claims. 

So, has the Act made any discernible difference? For Ives, the answer is ‘yes’. He says: “Insurers and brokers spent a lot of time with clients generally preparing for the introduction to the Act in 2016 and, given the fact that there have been very few reported claims by insureds against insurers for not paying claims pursuant to the Act, one would have to say that it has been successfully implemented overall.”

And Walker concurs: “The BPIF has had no complaints about the Insurance Act, and indeed gets very few complaints about the insurance scheme it recommends. I can therefore only assume that the Act has had no noticeable [negative] effect.”

Hallam, however, thinks that the Act has led to greater disclosure [by insureds] with the overall placement of risks more professional – “claims are also more likely to be settled now than repudiated altogether due to proportionate remedies”.

Dealing with declined claims

Of course, the key to any insurance product is the confidence that a valid claim will be processed and paid out quickly. 

But disputes can still arise. From Ives’ perspective, an “insurance policy is a contract and whether an insurer is in fact entitled to deny a claim depends on an assessment of the contract, the law and the facts of a given case.” He says that often it is possible for insureds to challenge an insurer’s rejection of a claim and negotiate a settlement, “although an insured will always have the right to challenge a declinature through the courts or arbitration.”

Before going down the legal route an insured in dispute might want to consider the Financial Ombudsman Service (FOS). A free-to-use service (for the complainant at least), it is primarily aimed at helping the individual. However, it can help certain businesses and charities and from 1 April 2019 more firms came under its protection. Now those with less than £6.5m turnover (was £1m), fewer than 50 staff (was less than 10) and a balance sheet of less than £5m (previously less than €2m. Yes, euros) can seek assistance. 

But just as the FOS gained new powers to help more businesses, so the limits on compensation rose. Complaints made before 1 April were limited to £150,000. But complaints relating to periods before 1 April but referred to the FOS after 1 April are limited to £160,000. However, complaints relating to periods after 1 April have an upper limit of £350,000. Beyond those limits the FOS can only recommend that the institutions pay more.

Ideally, however, both large and small firms should exhaust their insurance company’s complaints procedures in the first place – it’s a faster and less expensive route to resolving a dispute.

To conclude

The principles when buying insurance haven’t changed, despite the advancement of the law and technology. Firms should find a good broker, understand exact the risks they want to insure against, declare every relevant fact and comply with every policy term.

Cutting corners might seem like a great idea at the time, but as anyone who has needed to make a claim, problems with insurance only ever come to the fore when disaster strikes. 

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