Large Losses Do Happen - 1999 Summary

Joachim Orejas, London


Background
A substantial number of Large Property losses occurred in 1999. Below is a list of some recent losses greater than USD 25,000,000. It includes a brief description of the Occupancy, Country, and Cause, as well as the estimated amount of loss for Property Damage and Business Interruption. Our goal is to capture as much large loss data as possible to see which issues might contribute to making these losses larger than would otherwise be expected. Of the 43 losses below, nineteen occurred as a result of the peril of fire, and eleven from explosion.

Large Loss Defined
A Large Loss is defined as any single loss that has caused insured damage over USD 25 million. The list excludes large Catastrophe losses such as the Sydney Hailstorm or the Turkish Earthquake, however it does include those losses caused by earthquake, wind, or flood if the individual loss to any one insured is larger than USD 25 million.

Lessons From Losses
1. Older plants & facilities that rely on old technology present substantial exposures in the areas of Replacement Cost, Demolition and Increased Cost of Construction, Law and Ordinance, Contingent Business Interruption, and Extended Period of Indemnity. Correct values, policy contract wording, and sub-limits in these critical areas can make the difference between normal loss expectancy, or millions more for unintended coverage.

2. Insurance to value continues to be a problem in the Business Income area. In this period of substantial growth, companies can take on new production quickly by outsourcing from others, acquisition, or simply product growth. The necessity to obtain, understand, and analyze Business Income worksheets, sales trends, and other financial data is crucial to evaluating this critical area of coverage. The "extended period of indemnity" can add millions to a Business Income loss and should be carefully thought through and based on sound financial data.

3. To help minimize the BI loss, both insurer claim departments and independent adjusters who handle large property losses should develop the capability and resources to identify replacement, stand-by, or spare equipment in the event of a loss. This is particularly true with Machinery and Equipment losses. The ability to identify and expedite the delivery and installation of critical production equipment can lead to substantial savings on Business Income.