When I was a broker I never understood why so many liability underwriters looked down on their property brethren. After all, it was plain that the casualty world was far more likely to cause trouble than the plain vanilla, short-tail, tangible physical damage market.
In more lucid moments I often thought that third party liability insurance policies were just a very elaborate way of issuing someone with a blank cheque.
They start off straightforwardly enough, perhaps lulling the reader into a false sense of security. In Anglo-Saxon jurisdictions the neat and simply worded arrangement agrees to indemnify the insured for the legal liabilities that it may incur arising from the course of its activities.
The general principle is that if it isn’t excluded, it is included.
Understandably, given the slant to inclusivity enshrined in the simple insuring clause, this opener is followed by a long list of exclusions borne from the near-death experiences of yesteryear. Asbestos, gradual pollution and various different forms of first party and pure financial loss are all out.
But effectively cover is on an “all risks-minus-the-nasty-ones-we-know-about” basis.
The problem is that because new perils only emerge slowly, underwriters have always been behind the curve. Look at the way wily lawyers shoehorned asbestos into decades of commercial package policies written on a losses-occurring basis.
But who could blame them? Great damage had been done and the insured was legally liable – coverage could hardly be in dispute.
Therefore the only way for a liability underwriter to get ahead of the curve is to be trigger-happy with exclusions. When market conditions did not allow this it was deemed far better for all simply to not name the perils one was worried about and stay “silent” (Y2K and electromagnetic fields immediately spring to mind).
Whenever I picked up a named perils property slip in our office I always had a laugh reading through the ridiculously exhaustive list of ways in which damage might be done to tangible assets.
Impact of vehicles, mysterious disappearance and even fall of objects from space all seemed to get a mention. What were these people worrying about I wondered? Why not bung in alien abduction while you were at it?
There are only a finite number of ways of damaging a building and I figured the ancient quartet of earth, wind, fire and water should cover just about everything. Indeed, I always wondered why more didn’t just go more down the “all risks of physical loss or damage” route.
But then I also had a sneaking admiration for a group of underwriters sticking to their guns and refusing to give cover that wasn’t specifically named.
The named peril property underwriter’s logic was ceaseless. If you dare name it, presumably you must understand it. If you understand it, you must be able to price for it, and if you price for it you should be able to profit from it.
Naming it, aggregating it and making people pay for it has got to be the way forward for the casualty world.
Surely in the 21st century leaving the perils that you know that you don’t know about lurking silently in a wording (for free) has got to become a thing of the past?
Have a look at page 11 for a fascinating cover feature on the latest developments in casualty modelling from our editor-in-chief, Adam McNestrie.
P.S. I hope to see you in Monte Carlo!
To read the Autumn 2016 issue of IQ, please click here.