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Insurance Wordings

From cyber exposures to damages for late payment, we offer our international experts’ predictions on the opportunities and challenges that underwriters may face in the coming year and beyond.

Insurance Wordings predictions
#1 Policy wordings – all change!

Wordings specialists are in high demand.  Even before COVID-19, the Lloyd’s initiative on providing clarity for cyber exposures was keeping wordings teams busy.  During 2020, about 35 new cyber endorsements were published. During the same period there was a comparable number of endorsements for communicable diseases. There will be duplication between these, but also subtle differences which will require care to identify.  Over time, the new clauses will fall in or out of favour.  Lloyd’s has recently launched an initiative to build simpler insurance products to better protect customers, so wordings will require far more attention for some time to come.

#2 COVID-19 and damages for late payment

Will COVID-19 related claims lead to damages for late payment?  While the FCA action has resolved some issues, inevitably areas of uncertainty remain and the adjustment of claims will take time. Where businesses fail during this period, liquidators should be expected to consider whether insurers face additional exposure for late payment. Under the Insurance Act 2015, insurers are entitled to time reflecting the ‘size and complexity’ of claims. They can also point to ‘factors outside the insurer’s control’, potentially extending to resolution of the FCA action. Where businesses arguably fail because of delayed insurance payments, disputes can be expected to arise as the application of these provisions is tested.

#3 Increased regulatory focus on insurance policy wordings

The coronavirus pandemic highlighted a clear mismatch between the expectations of many insureds and insurers as to how their policies should respond to COVID-related claims. As a result, we expect the Financial Conduct Authority and other regulators to address product design, policy wordings and product governance in future regulatory initiatives. In October, Lloyd’s published ‘Building simpler insurance products to better protect customers’, setting out three areas of focus for the insurance industry: product language and presentation; product design; and greater customer involvement to build simpler, more relevant products. Expect these issues to be high on the agenda for the next few years.

#4 Underwriters will focus on measure of indemnity wordings

In light of the Court of Appeal’s decision in Endurance v Sartex in March 2020, property underwriters should tighten up wordings to make it clear that, in the absence of actual reinstatement (or if for whatever reason the Reinstatement Condition does not apply), the measure of indemnity under the Insuring Agreement is diminution in market value. Otherwise, the key question is ‘what measure of indemnity fully and fairly indemnifies the insured for its loss?’ The insured’s intention remains relevant when assessing the value of the property to the insured at the date of the peril. However, unless there is clear evidence that the insured had no intention to reinstate at the time of loss or that by reinstating the insured would not be mitigating its loss, the appropriate measure is reinstatement cost rather than diminution in market value.

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