Keoghs partner explains how technology needs to be utilised in order to handle the vast uptick in business interruption claims as this typically low frequency incident becomes a ‘surge event’ following the onset of coronavirus
Technology needs to be used to reinvigorate the claims process surrounding business interruption (BI) claims as the Covid-19 pandemic and the government’s response measures have transformed this line of business from experiencing low frequency incidents to a “surge event”, said Dene Rowe, partner and innovation director at law firm Keoghs.
Outlining why BI cover has struggled under the weight of recent coronavirus-related claims, Rowe explained: “In the pre-Covid world, business interruption was a cover that was typically brought into account rarely, at a localised level, and generally as part of a wider claim for property damage.
“You could ‘get away with’ hand-crafting a bespoke adjusted solution that took into account the specifics of the business because the claims were not frequent and it made sense to have the loss adjusted as a whole for the customer.
“Covid changed that of course. Business interruption went from a low frequency, bespoke approach, to a surge event with potentially hundreds of thousands of claims – almost overnight.
“The key challenge is capacity. Unlike in property surges, there aren’t enough business interruption bespoke claims specialists to handle this volume in the traditional way.”
Tech-driven claims journey
For Rowe, technology is the solution to this claims conundrum.
“At the heart of this is the understanding that business interruption applies the same first party claims journey – however, it’s never really had its own claims workflow,” he said.
“The approach of ‘Capture, Validate, Value and Manage’ still applies, but no-one has previously had to design a self-serve capture journey specific to BI.
“Addressing this needs an approach that is specific to the surge scenario - not least to protect customer service and protect the scarce commodity of business interruption experts. This is where technology plays its part.”
Rowe recommended a six-step process, starting with creating a “self-service consistent approach to capturing the business details, pre-loss business financials, interruption financial impact, increased cost of working (ICOW), savings and validation documents in order to streamline the claim notification process in a structured way”.
The next steps include:
- Deploying technology to streamline policy validation, helping to validate coverage decisions using structured underwriting data, or using data science to extract key coverage limits, terms and indemnity periods from schedules of insurance.
- Linking in third-party technology to utilise external data sources, for example using Companies House data or bureau data to enhance the data provided by the customer and to further validate claims.
- Applying a series of rules that provides validation automatically. This could identify, for example, levels of gross profit acceptability per industry or any red flags.
- Using a consistent, commercial and pragmatic valuation matrix that levels out trends and helps provide an initial valuation – “taking the complexity out of the art form that is BI quantum”.
- Provide a management portal that allows claims handlers and supervisors not previously deemed as ‘experts’ in the BI space to manage claims safely within set parameters.
Rowe added: “The key here of course is stringing all this together into a bona fide end-to-end surge response specific to business interruption and specific to Covid.”
The advantage of this model, said Rowe, is that “customers will get paid quicker [and] the loss adjusters get to focus on those claims that need bespoke handling.”
Legal clarity
Speaking on the High Court’s September judgment on the FCA’s business interruption test case, Andrew Morgan, a solicitor in the commercial dispute resolution team at Blacks Solicitors, said: “On 15 September 2020, the High Court handed down judgment in the FCA test case, in which it was considered if numerous business interruption insurance policies [or] clauses were liable to pay out as a result of the Covid-19 pandemic.
“The result came back largely in the favour of policyholders. A further hearing then took place for the parties to discuss the declarations made and whether certificates should be given for ‘leapfrog’ appeals to the Supreme Court, which were granted for the majority. The case is therefore now seemingly heading for the highest court in the land to provide definitive legal clarity.
“Ultimately, whilst scores of QCs pour over the numerous appeals filed and consider the finer points of contractual interpretation for this landmark case, most policyholders will simply be asking what this means for them. In short, the High Court judgment is valid unless it is overturned by the Supreme Court.
“It is therefore sensible for any policyholders who believe they may be entitled to payment under the High Court judgment to consider contacting their insurance intermediaries to put them on notice of a potential claim.
“Whilst it is likely that the insurers will at this point defer from making payments until the Supreme Court judgment is handed down, if indeed the specific policy type is appealed, policyholders should ensure they comply with any conditions as to notice and put themselves at the front of the queue for payments in the event the Supreme Court returns a favourable outcome.”
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