Insurance Wordings

Insurers will be paying close attention to, and preparing for, the new Consumer Duty which largely comes into effect on 31 July 2023. We anticipate significant resources will, and should, be directed toward reviewing and implementing processes for insurance distribution that are compliant. However, this should also extend to reviewing policy wordings to ensure they are both fit for purpose (particularly the value of additional covers to core cover) and written in a way that is clear and easily understood by policyholders.

Following the FCA test case over business interruption cover for COVID claims, we predicted insurers would increase investment in policy wordings, as they seek to resolve uncertainties highlighted in that litigation and to meet regulatory standards. Further pressures on wordings teams are now in the pipeline, such as the new Consumer Duty and greater scrutiny of systemic risks. As a result, we have observed an increase in movement of wordings specialists in the sector, raising recruitment challenges. Policy drafting requires a good understanding of individual lines of business and the regulatory environment, plus the ability to draft with precision. Insurers will need to consider ways in which to retain their employees in this area and also how they can attract the right candidates from a limited pool.

Cyber war endorsements are like buses: after a prolonged absence of new clauses, there are now several different options available to cyber underwriters. These include the LMA market clauses (LMA5563-5567), the Marsh/Munich Re clause introduced in Spring 2022, plus a range of bespoke responses from leading insurers in this space. The LMA group has reconvened to review this further. This has been brought into focus by the conflict between Russia and Ukraine, and associated events such as the Viasat satellite attack and damage to the Nord Stream pipeline. Finding solutions that limit exposure to systemic risks but do not impede commercially attractive solutions for the market is challenging. While we appreciate the need for consistency across towers, and back-to-back provisions with reinsurers, further innovation is welcome in identifying acceptable solutions.