With the global nature of modern business exposing insurers to a variety of major loss challenges, Trevor Latimer assesses the consequences.
A major loss and how it is handled can quickly become the shop window of the insurance provider and broker. It is the ultimate test of the 'what if' scenario, discussed way back at the first meeting of the cover provider and client.
With business becoming increasingly global, and claims provisioning rightly mirroring this, the industry is regularly exposed to an array of major incidents across the globe — yet there are certain key principles which should be adhered to when dealing with any major loss.
Understanding the client and their business is crucial, particularly for the innovative — and often bespoke — solutions that a major loss will require. Likewise, building a trusted relationship with key stakeholders should always be of utmost importance, particularly given that for most businesses this will be a 'once in a lifetime' incident. Lastly — and something that should be a given for any global loss adjuster — a consistent approach to the technical issues and complexities that can arise in a major loss is vital, whatever and wherever the claim.
An appreciation of these core issues will go some way to ensuring that the claims handling approach is well placed to produce a swift and cost effective outcome for both insurer and insured.
It is worth pointing out at this stage, that a major loss can mean different things to different people, but in generic terms it is a loss arising out of an insured incident, which will give rise to financial loss. This loss is usually in terms of the cost of reinstating property damage and, very often, significant consequential financial loss arising out of an interruption or disruption of trading stemming from the incident.
In the case of an SME steel fabricator, that could be an incident involving a fire in the workshop, costing £150 000 to repair and a loss of business of £200 000. However, a leading global oil production business, might view such an event as insignificant and measure a major loss as the catastrophic loss of an ocean exploration/production platform where the comparative losses may well be measured in billions. Suffice it to say that when it happens people know about it, in terms of the consequences on their own particular world, albeit that their world might be getting bigger every day whether they want it to or not.
Examples of just how diverse major loss assignments can be range from the ‘freezing' of an aluminium smelter located in the middle East, to the destruction by fire of a garment factory manufacturing a globally renowned brand of jeans in downtown Mumbai, or even a product recall claim for a world famous cycle manufacturer relating to frame welding failures in Guangzhou, China. All of these examples necessitate coping with issues relating to language, currency, climate, culture and global consequences.
For a typical UK-domiciled manufacturing business, while the origins of the manufacturing base may once have sat proudly in Birmingham, Glasgow or Manchester, these will now more likely be headquarter office locations and distribution centres, with the manufacturing plants potentially located many thousands of miles away. These new locations are often rooted in emerging economies to take advantage of the well rehearsed cost arbitrage, applicable to virtually all operational aspects of any manufacturing process.
Such issues have to be seen as all the more important, in terms of the quality of these new business environments, where the manufacturing cost advantage can often come with a consequent absence or watering down of regulations relating to general safety and security of the workplace. As anyone with experience of general insurance is only too aware, there is typically a direct inverse relationship between a lack of appropriate risk management and claims incidence. Thus, the poorer the risk environment, the bigger the potential for a major loss.
However, global clients demand a consistent quality of service on major losses, wherever the location. As a result, operational structures across the globe are crucial, as is the ability to provide the appropriate blend of expatriate technical knowledge and global experience with local know-how and experience of the commercial and judicial environment.
From a technical point of view, the financial aspects of any major loss will necessitate a detailed review. Knowledge of the processes undertaken is essential, as is an appreciation of key dependencies. A production location may have vital machinery and plant, damage to which could effectively bottle neck production. Other external factors will also require comprehension, not least the customers' trading positions and their attitude to the incident, as well as the position of competitors.
Business interruption is a common factor in major loss and can take on even greater importance when linchpin manufacturing locations can often be found in remote and otherwise under-developed locations. While such policies are formulaic in their approach to loss measurement, there is always subjectivity in projecting performance of a business post-loss.
On a practical level, catastrophic events, such as recent earthquakes in China and Latin America produce even greater challenges for global loss adjusters in this respect. While press coverage quite rightly deals with the human tragedy that accompanies such events, the scale of resources required to deal with these incidents can further increase the complexities of dealing with a commercial loss. Finding a means of replacing the lost production in such cases may even mean having to look elsewhere in the world.
In every major loss situation that adjusters face in the global context, the constant common issue relates to the consequent threats created by the interdependency of global strategies. The future of world loss adjusting undoubtedly lies in understanding and - ultimately - harnessing this changing dynamic across the globe.
Trevor Latimer is UK managing director of MYI chartered loss adjusters
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