Mactavish, a UK-based expert on insurance governance, has warned UK corporates of the growing risk of insurers not paying out their commercial claims, with data from the company suggesting that as many as 45 per cent of large, complex commercial claims are disputed by insurers. The boards of such corporates, according to Mactavish, lack a complete understanding of the limitations and conditions of their insurance policies, and as a result are blissfully unaware of the high risk of claims not being paid.
On average, Mactavish’s data suggests, these sorts of major corporate claims take around three years to resolve, and settlements tend to be around 60 per cent of the initial values estimated.
The company also warns that, on top of a lack of board-level understanding of these risks, the Insurance Act 2015 and the recent update to the Corporate Governance Code earlier in 2018 are adding to the confusion. If board members are uninformed, that increases the risk of them not informing their insurer of information that the insurer needed to know, and as a result, the insurer has legitimate grounds to refuse a claim. The knock-on effect of this could be very damaging for a company, with shareholders potentially suing.
“Generally speaking there is low Board engagement in insurance, which is out of line with their focus on other capital instruments,” commented Bruce Hepburn, CEO of Mactavish. “All chief financial officers, for example, would know about their banking covenant conditions but very few would have knowledge about the limitations of their insurance cover.”