Emergency Protection

Each day, bad news and catastrophes fill the headlines. All too often, these disasters are so extensive that large-scale public emergencies are declared. Such events can seldom be entirely prevented, but nonetheless it makes sense to be as prepared as possible to minimize resultant damage. Indeed, in the insurance business, loss avoidance and mitigation are fundamental principles. Recently, Insurance Bureau of Canada (IBC) has been working with industry partners to better protect consumers by building new emergency contingencies right into policy wordings.

Especially since SARS in 2002, and given this year’s appearance of H1N1, there has been increased focus on the need for all individuals and organizations to consider their disaster preparation plans carefully. Beyond pandemics, there are countless possible events, natural or otherwise, which could prevent people from conducting their normal business, banking or employment activities for protracted periods.

Two years ago, brokers at the Toronto Insurance Conference started thinking about the potential problems that could arise, specifically within the insurance sector, if the complex connections, relayed communications and interactions upon which our industry depends were widely disrupted because of a civil emergency. Broker colleagues at the Insurance Brokers Association of Canada shared their concerns.

What if, for example, insurance company and brokerage staff were forced to stay away from work during a pandemic outbreak, so that documents were not processed and sent out to consumers in time for renewal dates? What if, following a major earthquake, brokers were unable to communicate with underwriters to confirm new terms for a commercial developer’s program prior to its expiry, potentially leaving millions in property and liability exposures uninsured? And what if a hurricane caused widespread damage to the power grid — and consequently to automation- dependent banking systems — so that consumers were unable to remit premiums prior to payment deadlines, thus triggering automatic cancellations?

Certainly it seems unfair to penalize clients and jeopardize their financial security because of such events outside of their control. Brokers looking at the possible consequences agreed that policyholders should not suffer because of overall disruptions to business. Indeed, surely in such a situation consumers would also be overwhelmed with other pressing concerns. Perhaps here was an opportunity for the industry to alleviate some of those worries and provide a measure of reassurance and certainty in one area, even in the midst of otherwise uncertain and confusing circumstances.

IBC was the logical forum through which to build industry consensus. Ultimately the IBC board directed an ad hoc committee, including broker representation, to draft an advisory wording for a Declaration of Emergency endorsement. The intent of the project was to provide relief to consumers by extending expiry dates or temporarily suspending pending cancellations in an emergency situation. The resultant document contains advisory wording, published by IBC as an aid to members, but carrying no obligations. Insurers are free to accept, adapt or reject any part of the text should they choose to incorporate the advisory language into their own policies.

After a discussion of many months, insurers, brokers and reinsurers from across the country eventually reached agreement on the advisory endorsement. On Sept. 30, the IBC board officially approved the resulting document.

The wording, if used in its advisory form, accomplishes certain objectives:

• It extends the term of an expiring policy, or suspends the notice period for a pending cancellation, after the declaration of an emergency.

• The extension is triggered by the declaration by a civil authority, rather than by an otherwise insured occurrence.

• The extension period is tied to the length of the emergency itself, with a corresponding recovery stage allowed for the resumption of normal business. There is a maximum total time of 120 days (90 days, plus up to 30 days’ recovery period).

• Cancellations cannot be initiated by insurers during the extension period, since termination notice periods are suspended.

In order for the extension to be triggered, the declared emergency must directly affect the client, the insured premises, the broker or the insurer’s operations. Premium continues to earn at the same rates on a pro-rated basis.

It is just as important to be aware of what the wording does not do:

• It does not create any additional coverage, and cannot reinstate coverage for which the cancellation notice period has already expired.

• It does not extend the indemnity period for any business interruption claims already in progress or that occur during the emergency period.

• No additional time is allowed for claims reporting provisions, unless those limitations are specifically tied to the policy expiration.

• Clients are not prevented from initiating coverage changes themselves, if and when they can communicate with brokers or insurers.

• The endorsement cannot be used with automobile policies, since endorsement forms for auto coverage must be separately approved by provincial governments.

The full endorsement text will be posted on IBC’s members-only Web site, Infosource. It will then be up to insurers to make decisions about officially adding the wording to their own property and casualty policies. In addition, more urgent work needs to be done to approach provincial authorities to create similar safeguards for automobile coverage in all provinces. There will be a continuing role for brokers in those efforts. Brokers also have a role in supporting insurers that choose to implement the wording, and in carrying the message to consumers about their new additional security.

Much as we might like to, we cannot prevent all possible calamities. But as a result of this genuinely cooperative effort, when disaster does strike, the insurance industry has at the very least offered some additional peace of mind. In the end, the extensions in the advisory Declaration of Emergency endorsement give consumers a little breathing room so that they can attend to the other things that matter to them in times of a public emergency.

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The intent was to provide relief to consumers by extending expiry dates or temporarily suspending pending cancellations in an emergency situation.