By Mr. Lazaros Sibanda, Head: Technical Support at PARTNER RISK
Assets All Risks (AAR) insurance offers wide-ranging cover, but as highlighted in
Part 1 of this series, the details and conditions behind the cover are where brokers must focus. In April, we explored commonly overlooked but critical components such as debris removal, compliance with building regulations, tenant improvements, average application, and sub-limits.
In Part 2, we conclude this series by unpacking additional technical areas that require careful broker oversight. These provisions, exclusions and extensions – if misunderstood or miscommunicated, can result in gaps in cover or disputes at claims stage. AAR insurance is a powerful tool, but only when applied with precision.
Goods In Transit (GIT) limitations – incidental and should not replace Marine cargo policies
The Assets All Risk insurance typically provides GIT cover as one of the sub-covers. However, a limitation on this cover is that only incidental transits are covered. This typically excludes transit of stock and raw materials to and from customers and between centralised distribution warehouses and branches and between branches.
This protects the AAR policy from the associated transit risks (fire, collision, overturning, theft etc. during transit) which are inherent in routine and repeat conveyances during the course of the business. These routine conveyances can be more specifically insured under marine cargo policies. Underwriters will therefore carefully assess the nature of the business and the limit of the GIT cover required to ensure that only incidental cover is provided.
Unnecessary punitive deductibles – these may not achieve the desired objective if management attitude to risk is unchanged
Deductibles are generally imposed on policies by insurers not only to save on administrative/claims costs attached to settling small attritional losses, but also to encourage an insured client to effect required risk improvements and proper risk management measures so as to avoid the cost associated with financing self-insured losses. In the process, a superior risk management culture by the insured will be promoted which results in fewer losses, fewer interruptions to the business and is ultimately rewarded by the insurers in the form of low claims bonuses and premium discounts, a win-win situation for all.
Punitive deductibles may be imposed by insurers where the insured has been slack or slow in implementing the required risk improvements and this inevitably results in greater commitment and speed of implementation. The punitive deductibles, which are usually larger and/or more stringent than normal deductibles, may however not achieve the desired objective if the insured’s management attitude to risk remains unchanged. The risk may eventually become uninsurable (where the probability of losses becomes almost certain) and insurers could then opt to discontinue cover.
Contingent Business Interruption (CBI) extensions – can result in indirect exposure to undesirable risks that fall wide of primary risk appetite
While CBI extensions were intended to broaden the policy coverage so as to include business interruption resulting from loss or damage suffered by an insured client’s customers, suppliers and utilities, the type of such loss or damage by the customer/supplier/utility would be limited to physical damage caused by a peril or event that is already covered under the insured’s policy. Furthermore, only direct or first-tier customers and suppliers are ordinarily covered by most insurers. Losses by customers/suppliers/utilities caused by events or perils falling outside of the insured client’s scope of cover would thus be excluded.
Power surge cover limits – simple inexpensive arrestors and voltage regulators can save significant interruptions to business
Increasingly, most insurers have been excluding losses of an electrical nature where there are no power surge arrestors and voltage regulators installed. A lack of these protective devices results in avoidable damage happening to electrical machines and equipment during power spikes or surges.
The cost of these protective devices is generally quite low and it is imperative that insured clients should have these installed to avoid unnecessary interruptions to their businesses and possible rejection of claims where there is an insurer warranty on installation of these devices.
Solar cover limits – plethora of installations on existing roof buildings. Be aware, no industry standards of installation. Likely to be sub-limited covers
With the advent of extensive load shedding in the recent past, there was a rapid increase in solar installations across most properties around the country, particularly on rooftops. Unfortunately, up to now there are still no industry standards with regards to installation, maintenance and safety/fire protection measures pertaining to solar fires etc. Consequently, each insurer has come up with their own in-house best practice standard to regulate solar installations. The lack of industry standards and the lingering uncertainty regarding solar installation risks implies that cover provided for solar installations is sub-limited with conditions and this will likely remain the case into the foreseeable future until industry-wide standards have been developed.
Pay-as-paid clauses – applied by fronting insurers and exacerbated when acting as lead insurer
It does happen sometimes that an insurer may, for various reasons, be unable to underwrite a risk to their balance sheet but ‘fronts’ it for a reinsurer who may have the appetite or capacity to underwrite the risk. While there would be a retail contract between the insured client and the insurer, a separate independent fronting contract would exist between the insurer and the reinsurer they are fronting for. In the event of a loss arising, it is the retail insurance contract under which the insured client will lodge a claim and expect to be indemnified.
The insurer will more often insert a “pay-as-paid” clause in the retail contract which basically says they will settle the claim once they have also been paid by the reinsurer. This may cause delays in settlement and there is an ever-present counterparty risk faced by the insurer in the event of the reinsurer failing to pay. The problems are exacerbated when the insurer is a lead insurer on the retail policy in that they would often have the greater written line and thus delay settlement of the largest portion of the claim to the detriment of the insured client. This is even more so should the reinsurer become insolvent and the claim resolution ends up in litigation.
Follow-the-lead clauses – the dearth of capacity led to increasing cases of split slips
The shortage of capacity in the market has seen a great number of risks being insured on a co-insurance and increasingly on a split slip basis. Most of these collective (co-insurance) arrangements have traditionally incorporated a ‘follow-the-lead” clause whereby insurers with follow lines agree to follow the lead insurer in the acceptance of a risk and the settlement of ensuing claims. However, due to disagreements in assessing liability etc., most insurers have unsubscribed to such market clauses and prefer making independent decisions in acceptance of a risk (or their assigned portion of it) and settlement of any associated claims. The scenario becomes increasingly complicated in the event of split placement (where there are split slips) as these may come with differing deductibles and policy conditions leading to different handling of assigned portions of a claim by the participating insurers.
Insurable interest – items endorsed to an Assets policy belonging to directors or owners (which should be part of a personal lines policy)
The Assets All Risks policy was indeed a groundbreaking insurance product when it was first introduced as it aimed to assist clients with a large and widely dispersed asset base to insure on a blanket basis with wider cover at a comparably cheaper cost than conventional commercial policies. Insured clients have largely taken advantage of the wider and cheaper cover under the Assets All Risks policy to include as many assets as possible, even those belonging to directors or owners of the insured business.
However, when a loss arises, insurable interest would have to be established and this could be challenging as the insured business is a separate legal entity from its individual owners. It behoves the brokers therefore that they should only include the personal belongings of directors on the Assets All Risks policy in only so far as the policy allows, i.e. when they are travelling on the business of the insured entity.
Our Final Thoughts
This continuation of our technical review highlights just how important it is for brokers to go beyond policy summaries and sub-limits. Assets All Risks insurance is broad by nature, but it is never without conditions. Each section, extension and exclusion must be reviewed in the context of the client’s actual exposure, operations and declared values.
While many of the concepts explored in this series can be applied more widely, the focus here is on the Southern African insurance environment. The wording practices, market norms and broker obligations referenced reflect the realities of this region’s commercial insurance market. Brokers operating in other jurisdictions should always apply the guidance alongside local market knowledge and insurer-specific documentation.
At PARTNER RISK, we remain committed to helping brokers structure and review insurance that holds up under scrutiny, because at claims stage, clarity is everything.
What This Two-Part Series Has Taught Us
Over these two articles, we’ve examined over twenty technical elements that can materially affect the outcome of a claim. From debris removal and mid-term asset declarations to pay-as-paid clauses and insurable interest, the message is clear: assumptions carry risk.
- Brokers are encouraged to:
- Review the scope and limitations of every extension
- Match cover structures to the client’s risk profile and industry
- Engage with insurers on wording clarity long before claim stage
Technical review is not an added service, it is the broker’s core value to the client. That starts with knowing what is in the policy, how it works, and where the exposures still sit.