Understanding the fundamentals
Kane’s risk management team was appointed to conduct a thorough analysis
of the insurance contracts for a large multinational conglomerate. Key factors
in the group’s decision to appoint Kane included our complete independence
and our extensive experience in the particular market sectors they operated in.
Central to the success of the project was the need for us to fully understand the
fundamentals of the group’s business. Our team carried out a comprehensive
review of its reports and accounts, analysed their extensive range of insurance
contracts and assessed their claims experience over the last three to five years
per line of business. The process was completed in two weeks.
Our review showed that the conglomerate had a very favourable claims history
reflecting a solid approach to operational risk management. However, what we
discovered was that the group’s insurance strategy did not provide sufficient
levels of coverage.
Analysis of the existing insurance contracts revealed the following
issues:
- Much of the policy wording was dysfunctional, with some wordings actually
making the policies invalid, void or voidable.
- The programme structures were outdated and every class of business
covered by the group had its own specific policy.
- The policies lacked any real consistency, even by class of policy.
- There were significant gaps in the coverage which the policies provided.
- Some of the company’s exposures were vastly over-insured.
- The policies had not been amended in light of new services which the
company now offered.
- Specific exclusions in the policies were discovered which the company
was not aware of and left significant exposures uninsured.
This case study provides an example of a well-managed company with a
good grasp of operational risk management. By addressing the deficiencies
in the existing policy wordings, amending policies to factor in the new risks
posed by the group’s increasing international reach and expanding list of
services, reviewing their risk retention strategy to reduce insurance spend
in areas where exposure is limited, and restructuring the overall programme
to introduce greater consistency, the group can achieve a much more efficient
and effective risk transfer strategy, enhancing their overall risk management.
In such circumstances, given the strong claims history, risk financing vehicles
such as captives or protected cell companies could prove extremely effective
not only in enhancing overall coverage and reducing risk expenditure, but also
offering the potential to generate a profit from a more proactive risk retention
strategy.
Should you wish to speak to a Kane expert about any of the issues raised in
this case study, please contact:
Keith Carten
Practice Leader, Risk Management
T +44 207 621 3722
E keith.carten@kane-group.com
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