Everything but the Kitchen Sink: When Political Risk Equity Claims Are Challenged
From violence in Venezuela and the US to rising inter-Korean tensions to sanctions in Russia, Qatar, and China, the frequency of recent events necessitates an unprecedented need for political risk insurance (PRI). But what if insurers don’t immediately accept your claim?
While insurers in all sectors may decline cover on technical grounds, in traditional named peril PRI we have started to see the episodic ‘kitchen sink declinature’. Most coverage disputes involve one, perhaps two, but certainly no more than three, real issues barring insurers’ acceptance. While still the exception (and notably absent in binary covers like non-payment insurance), in kitchen sink declinatures insurers raise every conceivable argument against cover, regardless of legal merit or the facts. But why?
- Tactics – Equity claims are usually high value. Insurers raise multiple coverage arguments hoping to open you to attempts to negotiate their payment downward by convincing you that your claim is weaker than it is.
- Lawyers – Although insurers often seek legal opinions on coverage, PRI is a niche specialty. If insurers’ lawyers have little PRI experience, their attempted thoroughness can manifest in an over-focus on marginal issues.
- Loss Adjusters – Adjusters are insurers’ eyes and ears in claims investigations. While they are meant to stick to the facts only, in an effort to add value they sometimes stray outside their expertise into coverage law, raising irrelevant arguments.
Kitchen sink declinatures frustrate insureds and – when left unchecked - foster toxic environments in PRI claims departments. Assuming you’ve worked with your broker and legal advisers at placement to understand your disclosure obligations as well as what is and isn’t covered by your PRI (in other words, “garbage in, garbage out”), there are several actions open to you to help move your claim toward faster determination:
- Communication – Foster trust by establishing a constructive and regular dialog with your insurers.
- Identify the real issues – Kitchen sink declinatures read like a graffiti wall of technical coverage arguments, but they often hide bigger considerations. Does your insurer doubt whether their reinsurers will accept your loss? Do you have a syndicate lead insurer with a particularly stubborn following market that’s not co-operating? Find out, so that you can focus on the right areas.
- Manage expectations – Try to give insurers dates by which they can expect things (your proof of loss/written claims submission, for example).
- Go the extra mile – PRI policies generally include an obligation to provide extra claims information to insurers, so be ready to respond to reasonable information requests.
- Don’t underestimate cultural differences – Your insurers’ tolerance for open confrontation, unconventionality, and expectations around seniority may be very different from yours. Accommodating these differences will help to maintain constructive communication.
With strong communication and a steady focus, you and your PRI insurers can help ensure that the relevant claim coverage issues are identified early and clarified promptly, so as to facilitate timely settlement.