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Avoiding Insurance Black Spots

The sheer complexity of modern insurance contracts creates dangerous gaps in coverage that treasury and finance managers need to understand and prepare to mitigate.

By Bruce Hepburn | June 26, 2019 at 12:03 PM

Large corporations have become so complex that many are dangerously underinsured for key business risks. It’s a problem no one, either inside corporate leadership circles or in the insurance sector, knows how to fully solve. In some cases, corporate risk managers do not even realize the problem exists until a large loss occurs.

Businesses have become more and more complex for decades, as they have expanded globally, engaged in extensive merger and acquisition (M&A) activity, and built cross-border sales and supply chains. This complexity has been exacerbated in recent years by operational responses to the global financial crisis, technological innovations, the rollout of new regulations and corporate governance initiatives in many jurisdictions, and internal cost-cutting programs.

Corporate complexity is mirrored in the increasing complexity of insurance policy contracts and how those policies respond to different types of loss. Insurers are redefining the scope of their policies through new specifications on which causes of loss are insured, which costs of incident response are covered, which parties fall within definitions of “insured,” how the many exclusions and extensions work together, how overlap between different policies is resolved—and the list goes on.

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