Whiteboard Magazine - December 2010 - JLT

whiteboard
www.jltgroup.com
Keeping you informed about risk and insurance December 2010
A time
to reflect
As the recession begins to recede, businesses
that took emergency measures to survive it are
now in a position to reflect on their vulnerabilities
and exposures – and so avoid painful
consequences. By Nathan Skinner
The severity of the recession has
fundamentally altered the risks that
companies face, increasing some and
adding entirely new considerations.
Meanwhile, there have been changes in the
insurance market, so what do businesses need to
be aware of
Risks in the downturn
Values of machinery, plant, contents and some
stock have fluctuated enormously in the
downturn. Some are cheaper, others are more
expensive. So for example, some items of
machinery have become more expensive as
replacements are harder to come by. Similarly,
you only have to look at food and drink
manufacturers, for whom the escalating cost of
raw materials will have profoundly changed the
value of the stock that needs to be insured. The
key is communicating changes to insurers to be
certain of having cover if the worst should happen.
Supply chains have also changed significantly
as companies have been forced to go to lower cost
suppliers in different territories with different risk
profiles. Ian Scott, National Sales Director at
Jardine Lloyd Thompson, says companies should
be evaluating “where the concentration of risks are
and where the bottlenecks could be”. Likewise the
risk of being affected by a supplier that has gone
out of business or hit difficulties with their own
supply chain is increased. Ultimately it is up to
businesses to determine with their brokers
whether their business interruption insurance is
adequate and if the cover is broad enough (see
>> Continued on page 4 >>
Inside
News in brief ............................................................................. 2
A time to reflect (continued) ........................................... 4
Talking points ....................................................................... 6
Burning issue: fire safety ......................................... 8
Understanding claims defensibility ................ 9
Focus on food and drink ..........................................10
About JLT .................................................................................11
And finally... ...........................................................................12

newsinbrief
Rounding up the latest news and developments from the world of insurance
Political violence
or terrorism insurance
Tough economic times and global
austerity is fuelling a rise in political
violence; from riots in Greece to
political violence in Thailand. In this
environment, companies with
overseas assets should consider
political violence cover.
Terrorism cover is more
commonly purchased, and readily
available, but Kelly Crouch, Head of
Terrorism at Jardine Lloyd
Thompson, recommends firms buy
political violence cover too.
She explains: “It’s all down to
definition. The political violence in
Thailand this year was named as
terrorism by the government, but a
UK court might argue it was not
terrorism as we understand it.
Without a clear definition, those who
only took terrorism insurance may
find the cover is not responding.”
Political violence cover extends to
these sorts of problems. “For an
extra 5 or 10 per cent they could
have bought a more comprehensive
cover,” Crouch says.
She emphasises it is worth being
proactive. “Don’t wait until political
violence erupts in one of your
trading countries as the price will
explode and capacity will implode. If
you have been a customer for years
underwriters will have a capacity set
aside for you,” she says.
Political unrest in Thailand: but was it terrorism
World Risk Review
To help companies understand the political risks
they face, Jardine Lloyd Thompson has developed
the World Risk Review. This provides short- to
medium-term assessments of the level of risk
associated with a range of political and economic
perils. Nine perils are rated in 197 countries,
drawing from 53 international sources, to deliver
an understanding of the relative level of risk
associated with each peril.
> www.worldriskreview.com
Insurance for
construction vehicles
An area of common concern for construction
companies is which policy should insure damage
or liability arising from the use of construction
vehicles: construction all risks or a motor policy.
A variety of factors will determine which insurance
policy provides indemnity.
There are questions of the use the vehicle is
being put to, the type of vehicle, the type of risks
that need to be covered, and the precise meaning
of wording within the policy such as ‘tools of trade’.
Great care also needs to be taken that the cover
provided by the various insurance policies both
dovetail and match the requirements.
For more information about this topic please
contact jltlimited@jltgroup.com.
63.8%
is the total tax and National Insurance payable
on a bonus to an employee on the new top rate
of tax this year (2010/2011)
65.8%
is the total tax and National Insurance payable
on a bonus to an employee on the new top rate
of tax next year (2011/2012)
0%
is the total tax and National Insurance payable
on a bonus that is diverted into an employee’s
pension scheme if it’s within the new limits.
Graham Cooke of JLT Wealth Management
outlines how you could reduce your tax liabilities
on the back page.
Employers’ liability trigger litigation decision creates uncertainty
After a year of deliberation, the Court of
Appeal handed down a decision in the
ongoing employers’ liability (EL) trigger
litigation, making the situation regarding
insurance coverage for long-tail disease claims
uncertain for insurers and some policyholders.
Essentially, the ruling will leave clients with pre-
1972 EL insurance written on an ‘injury sustained’
basis with no cover for mesothelioma claims caused
by exposure to asbestos before 1972.
Equally, claimants who were employed by now
insolvent businesses may have no recourse at all.
Policyholders would be prudent to research their
EL insurance history now so that any potential
gaps in cover thrown up by this latest ruling can
be identified.
Graham Terrell, Technical Adviser with Jardine
Lloyd Thompson’s Global Risk Solutions division,
says: “With the conventional insurance market’s lack
of appetite for asbestos-related risks policyholders
will really have two choices: to wait and see if
claims that are not covered by an insurance policy
are lodged, at which point they reflect it in the profit
and loss, or make some provision for such losses
in an existing captive or by using a cell in a renta-captive.”
• Jardine Lloyd Thompson has issued a bulletin
covering this issue. For your copy visit
www.jltgroup.com/risk-and-insurance/publications.
2 Whiteboard / December 2010

What the Employers’ Liability Insurance
Database means for you
The Employers’ Liability (EL) Insurance
Database, operated by the Employers’ Liability
Tracing Office, looks set to become a reality.
The proposals are designed to help employees
trace old insurance records to track down the
relevant employer’s policy if they suffer from
injury or disease caused at work. Previously if the
employer had ceased trading, was untraceable, or
could not identify the relevant policy, employees
had little recourse. Some 3,210 could not trace
their employer or insurer in 2008.
The Financial Services Authority (FSA)
finished consulting on proposals in September.
Among the positive feedback was that from the
British Insurance Brokers’ Association (BIBA).
Peter Staddon, British Head of Technical Services
for BIBA, said it would: “create a system that
makes it much easier and more successful when
tracing employers’ liability insurance records,
which is vitally important at a time when people
are suffering from a disease”.
Graham Terrell, a Technical Adviser at Jardine
Lloyd Thompson, points out that the move would
also benefit employers: “This addresses those
instances where employers have been left without
employers’ liability cover where they cannot trace
the insurer.”
Terrell adds however that there is one caveat:
“In the short term there is going to be a lot of
extra work. Part of the entry onto the system will
be a data template which has to be filled in with
all the details of the business and the employer
reference number (ERN). If the business has a
number of subsidiary companies, a separate
record has to be completed for each subsidiary –
whether there is a handful or a hundred of them.
Insurance buyers need to be aware that they will
have to provide the ERN in each instance.”
The FSA is expected to report its findings
before the end of the year. If it goes ahead it will
amend the Insurance: Conduct of Business
Sourcebook (ICOBS) to embody the new rules.
The register will include all policies under which
UK commercial lines EL cover has been
provided to employers which commenced or
were renewed or for which claims were made on
or after 1 November 1999.
The problem is the initial naivety of government
and some large businesses in thinking that chief
executives or shop floor management have the skills or
inclination to carry out a fire risk assessment.
Ian Gough, Fire Safety Consultant, discusses the flaws in the system on page 8
UK insurance premium tax rate increase
Jardine Lloyd Thompson called on HM Treasury to
introduce transitional arrangements for the insurance
premium tax (IPT) increase, to reduce uncertainty and
administrative complications. This was part of a joint
industry submission by the Association of British
Insurers and the International Underwriting
Association.
The Emergency Budget announced that IPT would
rise from 5% to 6%, but did not include transitional
provisions. HM Treasury had previously responded to
a separate representation from the London &
International Insurance Brokers’ Association (LIIBA)
requesting transitional arrangements. It said there
would be no concessionary period but admitted this
“may cause difficulties in processing and accounting
for tax on certain policies that incept before the date
of the rate rise.”
The tax rules mean that the new rate will apply to
some policies that incepted before 4 January 2011,
depending on the tax accounting procedures adopted
by insurers. In some cases, the new rate may apply to
additional premiums in respect of policies covering
risk in 2010. Brokers will need to ask individual
insurers to instruct which rates of IPT apply to
policies that incept before 4 January 2011. This could
result in both the old and new rates being applied to
different parts of a policy underwritten by several
insurers, depending on the tax accounting procedures
of the insurers.
LIIBA has opened discussions with insurance
sector associations to agree a protocol for
implementing the IPT rate rise.
Blogroll
The latest blogs from Jardine Lloyd Thompson’s
website www.jltgroup.com
Construction
Mike Johnson asks: why doesn’t a drop in
accident rates result in lower Employer’s Liability
(EL) rates Full and proper information gathering
at the time of an accident can mitigate claims
costs substantially.
> www.jltgroup.com/jlt-limited/blogs/construction
Real Estate
Bill Gloyn urges firms: don’t ignore insurance in
the case of fit-out contracts. When dealing with a
property insured by a third party, an approach
has to be made to that party at an early stage.
> www.jltgroup.com/jlt-limited/blogs/connect-to-real-estate
Global Risk Solutions
Luke Foord-Kelcey looks at cyber extortion – a
growing racket that is increasingly attractive to
cranks and organized criminals alike.
> www.jltgroup.com/jlt-limited/blogs/global-risk-solutions
Global Risk Solutions
Sarah Best looks at personal liability in
Germany, arguing that it’s good to be aware of
bespoke cover extensions under local insurance
policies which may fly under the radar.
> www.jltgroup.com/jlt-limited/blogs/global-risk-solutions
whiteboard
This newsletter is published for the benefit of clients
and prospective clients of Jardine Lloyd Thompson
Limited. It is intended only to highlight general
issues relating to the subject matter which may be
of interest and does not necessarily deal with every
important topic nor cover every aspect of the topics
with which it deals. If you intend to take any action
or make any decision on the basis of the content of
this newsletter, you should first seek specific
professional advice and verify its content.
Jardine Lloyd Thompson Limited
Tel: +44 (0)20 7528 4000 /
Fax: +44 (0)20 7528 4500
Web: www.jltgroup.com
Lloyd’s Broker. Authorised and Regulated by the
Financial Services Authority. A member of the
Jardine Lloyd Thompson Group. Registered Office:
6 Crutched Friars, London EC3N 2PH.
Registered in England No. 01536540.
VAT No. 244 2321 96. © December 2010
Publishing services
Provided by Grist: www.gristonline.com
www.jltgroup.com 3

A time
to reflect
Cover story continued
>> page 6 for a Masterclass in Business
Interruption).
“Business is changing at a fast rate
because of the recession,” adds Jardine
Lloyd Thompson Client Service Director,
Alan Percival. A company, for example,
that has been forced to pursue customers
by expanding into new markets, such as the
US, faces a different operating environment
and risk profile. “It is important to review
those changes,” he says.
Belt-tightening pitfalls
Recessionary belt-tightening has also
increased some risks. In an effort to
survive the recession, some companies
trimmed expenditure in non-core areas,
such as health and safety, loss prevention
or staff training – something that insurers
call risk engineering. “Some companies
may have, for example, cut back on
maintenance to keep their overheads
down,” says Scott. But this could leave
businesses exposed.
When the pressure to cut costs is high
some businesses may consider pulling back
and insuring less to save some premiums.
But it could be a “false economy” if it
comes to a claim, says Percival. Instead, he
insists, there may be areas where costs can
be reduced without sacrificing the level of
protection. “If a client has mothballed a
plant, for example, they need to consider if
the basis of cover should change from, say
full reinstatement to indemnity, to
accurately reflect the changed exposure.”
Workforce risks
If a business has been forced to downsize
or cut the workforce, they face more risks.
Companies now have an opportunity
to update their risk profile and achieve the
best deal in terms of cost and cover.
Ian Scott, National Sales Director, Jardine Lloyd Thompson
One is the threat of lawsuits. “In these
circumstances there’s often an increase in
claims,” says Scott. Percival suggests that
companies forced into making lots of
redundancies might “want to look at
employment practices liability or some
other form of legal expenses cover”. Jon
Fitzsimons, a Claims Consultant from
Echelon Claims Consultants, also suggests
employers consider a claims defensibility
audit: “This will highlight any potential
vulnerabilities which may enable an
employee to make a claim or damage the
employer’s ability to defend one.”
Another risk associated with downsizing
is that companies may lose experienced
workers in their business, which could
affect the quality of their products or
services. As a result “are you getting the
right professional indemnity, public
liability or product liability insurance”
asks Scott.
Renegotiate and review
Insurers look for a core base of clients
who practice good risk management.
Terry Whittaker, Managing Director,
Distribution, QBE European
Operations, explains: “There’s
opportunity within the market
Steps taken during the recession
The economic downturn has drastically raised the pace of change in the business
world. Such a severe recession has altered existing risks companies face and added
new ones. These include:
A sharp surge in outsourcing and overseas
joint venture activity which is significantly
increasing supply chain complexity.
Companies moving into unfamiliar product
areas and territories.
Speeding up product launches (creating
unknown quality or liability issues, internally
and with suppliers).
Supply chain vulnerability has increased.
More than 80 per cent of businesses say
this issue had changed their risk profile (for
example by cutting the number of
suppliers and distribution centres or by
relying on lowest cost suppliers regardless
of their reliability or capability to sustain
claims).
Increased outsourcing to unknown or highrisk
locations (pushing down unit cost at
the probable expense of quality and
reliability).
Firms have faced pressure to accept extra
liabilities in areas like product warranties,
recall costs, design risk, consequential loss
and so on. More than a quarter of
manufacturers cited such pressures having
already caused them to accept more risk.
Reducing supervision in key areas such as
health and safety or contract oversight.
Source: Mactavish report
4 Whiteboard / December 2010

The insurance
market remains to a
large extent a buyers’
market, with plenty
of competition and
spare capacity.
for recognition from insurers of those
clients who commit to long term
improvements, risk management services,
risk funding and health and safety
consultancy and advice being the usual
vehicles for that recognition.”
All this change means businesses should
be reviewing their cover. However, in spite
of the competitive insurance market,
companies do not seem to be doing so,
finds Scott. He says: “Quite rightly
companies have been focusing on the
pressing matter of survival during the
downturn, and some may have taken their
eye off the insurance ball. It means they
now have an opportunity to revisit cover,
cost and contributions to secure the best
overall deals possible.”
Market trends
Generally speaking, even though risk
profiles may have changed, insurers have
not gone around slashing cover. “What
brokers have been able to do to allay fears,
is to stand strong in the market and to win
savings without reducing the extent of the
cover,” says Scott. “A good broker should
make certain the insurance programme is
aligned to the business exposures and
make sure it changes with time. They
should have regular meetings with
the client and insurer to gather that
information.”
The insurance market remains
to a large extent a buyers’
market. Competition and plenty
of spare capacity means that
commercial insurance buyers are
in the enviable position of being
able to lock in good deals at a
decent price. “The insurance
market is still soft and receptive
for companies with a better than
average claims profile,” indicates
Scott. How long this soft market
can continue is a point of much
debate, but most commentators
agree it looks set to last through 2011.
Opportunities
All this means that now is the time to get
the breadth of cover required at the right
price. “There is sufficient capital and
competition in most insurance lines,”
says Percival. Right now there is
aggressive competition in
property and casualty lines and
prices are “down or static”.
Buildings, contents
and stock may have
changed, and this must be
communicated to insurers.
Supply chains have changed significantly
so undertake a business interruption
review.
Cutting back risk engineering is a false
economy, as the best deals are reserved
for those with strong processes.
Downsizing businesses may benefit from
legal expenses cover and a claims
defensibility audit.
Companies should check professional
indemnity, public liability and product
liability insurance against new/revised
contracts.
The insurance market remains a buyers’
market. Now is the time to lock in breadth
of cover at the right price.
The situation is paralleled in accident and
marine insurance classes. Rates are
“marginally increasing” in motor, he says,
but if the client has a good claims history
then rates should hold. Financial lines are a
little trickier. Solicitors’ professional
indemnity, for example, is a “hospital case,
with insurers running scared,” says Percival,
whereas professional indemnity for the
com/tech sector is highly competitive.
“Clients may be able to consolidate
insurance costs and lock in good terms with
a long terms rate deal,” says Percival. If
these kinds of agreements can be found, he
says: “They are a lot more advantageous to
the client because the insurer is duty bound
to stick to a set rate. Right now that’s very
attractive.”
To discuss any of the issues
raised in this article contact
Ian Scott on 0113 203 5832 or
Ian_Scott@jltgroup.com
www.jltgroup.com 5

points
Jargon
buster
Insurable gross
profit (IGP)
The net result of deducting
variable costs from turnover (with
adjustments for opening and
closing stocks).
Indemnity period
The period for which the policy
operates and relates to the time it
takes to reinstate damaged
facilities, plant, machinery,
equipment and contents and
recovery of market share. As a
minimum this should be 12
months and is often 18 or 24
months or longer. Since a loss
can occur towards the end of an
insurance year, businesses need
to declare budgeted and forecast
financial data for three years to
insurers.
Interdependency
Where damage within one part of
your own business has a knockon
effect on another part of your
business.
Increased Costs
of Working (ICOW)
Insurers are always open to pay
for ICOW that ultimately reduces
a gross profit claim.
Additional Increased
Costs of Working (AICOW)
ICOW will allow businesses to
spend £1 for every £1 saved in
IGP. However, in order to keep
customers, some businesses will
need to operate at a loss for a
period. AICOW allows you to
spend more than you would save
in gross profit.
Master class
Tim Cracknell, Partner, Jardine Lloyd Thompson
Business interruption
cover: Getting it right
Q Do I need business
interruption insurance
All types of businesses can suffer interruption from
natural or man-made disaster and may incur extra
costs or have reduced revenue. Therefore, arguably all
businesses should buy business interruption (BI)
coverage and have business continuity plans (BCPs) in
place to mitigate the risk.
If an interrupting event arises, the BI policy will first
be used to meet the increased costs of working
(ICOW), such as outsourcing or renting alternative
facilities. These costs are incurred on the basis that it
will minimise a claim for lost insurable gross profit
(IGP). The policy tends to respond later to any IGP loss
claim.
Businesses may buy cover on an ‘all risks’ or ‘fire
and perils’ basis. The ‘perils’ aspect covers a number
of specific perils with an exact definition in law so
coverage is restrictive. All risks will cover most events
– aside from stated exclusions.
Q How do I work out how
much cover I need
Typically mid-market businesses will insure their
annual insurable gross profit (IGP) for a specified
period: called the ‘indemnity period’. You need to make
sure it covers the time it takes to get the business
back on track (see jargon buster). If the IGP was £10
million, for example, and it would take the business 18
months to get back to the position it would have been
in without the loss, the sum insured is £15 million.
Extensions to the BI policy should also be
considered. Examples are interdependency, additional
increased costs of working (AICOW), suppliers,
customers, fines and penalties, denial of access,
infectious diseases and utilities (see jargon buster).
II
Q What pitfalls are going
to catch me out
Pitfalls include: declaring an incorrect sum insured,
buying too short an indemnity period, not buying the
right extensions, not tailoring policy wording to the
needs of a business and failing to tailor extensions to
the exposure.
Many businesses declare a sum insured that
excludes some fixed costs or includes variable costs.
The result can be understating or overstating the sum
insured, which may result in a claim being reduced or
too much premium being paid.
In terms of an incorrect indemnity period, even after
your facility is reinstated your customers will take time
to come back. Buying too short an indemnity period,
can leave the business with a gap in their finances.
Q What are the implications
of getting it wrong
At worst, insolvency. In most cases businesses will
incur unbudgeted costs, miss financial targets and
have to issue profit warnings.
Q So how do I go about
getting it right
Take professional advice. Jardine Lloyd Thompson
offers a BI healthcheck service. This includes making
sure the policy wording is tailored to the risk, and
developing BI underwriting presentations that reflect
the risk to the insurance market in a compact manner
and in a way that gets you the best result. It also
provides a BCP service.
5 tips
PAUSE
...on auditing a BI programme
1 Know the BI risk, evaluate the exposure
2 Don’t forget interdependencies or things that happen outside of damage to your property
3 Contrast the exposure with current coverage
4 Identify areas of inadequacy or over-purchasing – tailor coverage to your needs
5 Obtain premium pricing for changes to cover
6 Whiteboard / December 2010

Did you know...
Causes of data breaches
Cyber risks are on the rise
Every organisation is exposed to some
kind of cyber liability. Cyber attacks are
growing in frequency and sophistication,
and every business has its vulnerable
points. Even those that do not trade
online still rely to some degree on
technology to support business
performance. That may be through
purchasing supplies online, using
websites for promotion and service
delivery, for key business processes such
as sales using cloud computing
technology or simply maintaining client
and staff records on IT systems. Many
mid-market companies are not aware that
under general insurance programmes
cover may be limited or non-existent.
A major data loss that affects a
company, whether malicious or
accidental, can seriously damage the
balance sheet. The average organisation
cost of a data breach was £1.68 million in
2009. Regulators are cracking down on
firms that lose customer or employee
information with huge fines (the costs of
defending these actions may be
insurable). And companies that lose their
customers’ personal information will also
suffer a tough reputational hit.
Cyber losses fall into two main
categories, first and third party. Thirdparty
risks are the ones most commonly
associated with cyber risks, they include
contractual penalties due to IT failure and
privacy infringements after data theft.
First-party risks are those losses that
occur directly to the insured, such as loss
of profits from spying, or destruction of
corporate data and resultant business
interruption due to malicious attacks,
sometimes by rogue employees but also
by sophisticated cyber criminals.
Cyber policies will cover both. It is a
growing and competitive market, and
with the escalation in attacks, there has
been a rise in the number of claims, so
that insurers now have the data to enable
them to price policies competitively. A
comprehensive policy will cover firstand
third-party risks for everything from
theft of data to a hacker or virus attack.
In addition to a sound insurance
programme, good risk management and
support from the IT department are
critical in handling cyber risks effectively.
Robust security measures should be
developed in cooperation with the IT
department. An incident response plan
should be used to assist business
continuation in the event of a cyber
attack. This might include ‘hot seats’ so
that crucial business functions can be
carried out off site.
Competent risk management, quality
IT security software and a solid cyber
risks policy are the best methods of
dealing with cyber risks. The insurance
policy acts to support IT security, as it is
not possible to prevent every sort of
cyber attack.
24%
Malicious or
criminal attacks
30% 46%
System glitch Negligence
Average cost per record
of a data breach
£47 £60 £64
2007 2008 2009
Source: 2009 Annual Study: Cost of a Data Breach
dupe 5mm
Back to basics
Environmental liability
It is no longer true that the only companies exposed to
environmental liabilities are the ones in heavy industries. A new
European legal provision called the Environmental Liability
Directive, imposes strict new environmental liabilities. All
companies are now legally accountable for the pollution they
cause and for remediating any damage to the environment.
Traditional public liability insurance won’t respond to these new
liabilities, being limited to third-party claims emanating from
sudden or accidental pollution, so firms are turning to specialist
environmental insurance.
One thing to consider is whether
any of your sites are close to areas of
outstanding natural beauty. That’s
because the new environmental rules
include a provision which means that polluters may have to
remediate a site to the condition it was in before the pollution took
place. This can be particularly expensive in areas that have a
unique ecosystem or particularly delicate biodiversity.
In one recent case a famous celebrity chef was ordered to pay
compensation after his pub polluted a nearby stream with sewage
effluent. The Yew Tree Inn was found to be discharging sewage
into the stream causing it to become toxic. The £38,000 fine
included compensation to two nearby residents.
Jardine Lloyd Thompson recently designed an Environmental
Impairment Liability policy to respond to the environmental risks
faced by businesses today. The cost-effective policy will provide
for the legal costs in respect to regulatory action and civil claims
as well as for clean-up costs to contaminated soil or groundwater.
www.jltgroup.com 7

Burning issue: fire safety
Companies have been responsible for their own fire risk assessments since 2006. The concern is that many
are falling short, and exposing themselves to the risk of fines and prosecution. By Nathan Skinner
The Regulatory Reform (Fire Safety)
Order that came into effect in
October 2006 is a major game
changer. Responsibility for
conducting a fire risk assessment no longer
rests with the fire service but is the duty of
any contractor, business, public sector or
voluntary organisation that owns or
operates a building.
Tony Phillips, Risk Consultant at Jardine
Lloyd Thompson, explains: “Basically the
regulation takes away the requirements for
fire certification from the fire brigade and
puts the onus on carrying out a fire
inspection with a ‘responsible person’.”
Unfortunately the changes have led to a
degradation in the quality of fire risk
assessments, says Phillips. Some buildings
have no risk assessment at all or only a
superficial one, he says, and because
inspections are few and far between, many
operators are getting away with it. Ian
Gough, a former senior fire officer for
Birmingham and Northamptonshire, and
now a Fire Safety Consultant, agrees: “The
problem is the initial naivety of government
and some large businesses in thinking that
chief executives or shop floor management
have the skills or inclination to carry out a
fire risk assessment.”
Lack of training
Inspections are routinely carried out by
people who are not properly trained. Whereas
large companies can probably afford to pay a
consultant to do their fire risk assessment,
smaller organisations cannot and often don’t
have the expertise. “When we carry out
audits we are finding some very poor quality
fire risk assessments,” continues Phillips.
“The competency of the people who have
carried them out is questionable and the staff
are not trained. Basically it’s not worth the
paper it’s written on.”
The most important
action for companies to
take to meet their legal obligations are:
Ensure the responsible person is
competent and the fire risk
assessment is up to speed.
Ensure the risk assessment is
building-specific.
Ensure identified actions are planned
and their implementation is properly
managed.
£ 25k
£ 20 k
£ 15k
£ 10k
£ 5k
2001 2002 2003 2004 2005 2006 2007 2008
Furthermore, the regulations have led to
a growth in the number of fire safety
consultants, many of whom are not fit for
purpose, while the declining numbers of
fire safety officers in the fire service tend
to focus on residential rather than
commercial property, adds Gough.
“The most important thing is that
the person who does the fire risk
assessment should be competent,
but this doesn’t always mean
paying large sums of money to
external advisers.”
There are cowboys trying to
make money out of this. Using the
wrong consultants could cost lives
and destroy businesses. The
difficulty is in finding the right level of
advice or in-house training and
organisations such as the Institution of Fire
Engineers and the Awarding Body for the
Built Environment are working to provide
recognised qualifications for this new
industry,” says Phillips. Proper fire safety
training is available through accredited
courses, such as those run by the Fire
Protection Association.
More prosecutions
Businesses cannot escape the rules forever.
There is a growing list of prosecutions and
large fines against companies that have
failed to carry out a fire risk assessment
properly.
Many of these offences would have been
treated as minor under the old rules, says
Gough. According to the Chief Fire
Officers Association 60 companies or
Average cost of a fire claim
£7bn
The estimated cost of fire
in England and Wales
Commercial
Domestic
individuals in England were found guilty of
the most serious breaches of the law in
2009, up from 42 in 2008. The biggest fine
to date was handed out to New Look
Retailers, which was fined £250,000 for
failing to provide a “suitable and sufficient”
fire risk assessment, and £150,000
for insufficient training in
November 2009 following a fire at
one of its shops.
Meanwhile a fire risk assessment
is only the first step, adds Phillips.
“It puts down the preventative and
protective measures that should be
in place. Buildings should also have
a well tested evacuation plan,” he
says. If the fire service is forced to
attend a fire and enter a building to
evacuate people it will consider prosecuting
the owners.
The danger is that in the current climate,
businesses will try to avoid spending on
fire risk assessments. But Phillips says fire
safety does not always require a lot of
financing. And Gough thinks it’s easy to
spend money on things that you don’t need,
emphasising that, in his opinion, the key to
reducing fire risks is often more about
improving fire safety management than
installing equipment.
More information on JLT’s
property services is at www.
jltgroup.com/property-insurance or
contact Tony Phillips on 01628 586171 or
Tony_Phillips@jltgroup.com
SOURCE:ABI Research
8 Whiteboard / December 2010

5 tips
Understanding claims
defensibility
1 Prompt and thorough
investigation and
documentation of
incidents
2 Understanding of key
statutes that affect your
business
3 Appropriate training and
ensuring it is well
documented
4 Comprehensive risk
assessments
5 Proper risk
management loopback
to prevent future similar
accidents/claims
Liability claims are expensive, time-consuming and damaging. Do you have
everything in place to prevent or defend them By Lee Coppack
Every day, UK insurers pay out over
£7.5 million for general liability
claims. When a claim is brought
against an organisation, there will
always be a cost, much higher of course if
the claim is successful. Organisations with
an eye on the bottom line must take every
step possible to ensure they do not end up
being forced to pay a claim unnecessarily.
Added to that, for organisations
increasingly focused on social
responsibility, it is good governance and
corporate citizenship to ensure the business
does not end up liable for a claim.
Every organisation has health and safety
policies in place, but in this environment,
businesses must go much further. They
need the right paperwork, processes and
procedures in place to be able to prove
they have taken all the right steps, in order
to successfully defend any claim.
Health and safety paper trail
There are a number of things that each
business must consider. It is worth
revisiting health and safety paperwork to
ensure it is robust and effective. This will
include asking whether it is properly
completed in every incident. Jon
Fitzsimons, a Claims Consultant with
Echelon Claims Consultants, says: “If you
produce the accident form, but have not
got the employee to sign to state that this is
An accident
form which isn’t
signed by the
employee, is
often not worth
the paper it is
written on.
Jon Fitzsimons, Claims
Consultant, Echelon
Claims Consultants
an accurate reflection of the incident, then
it is often not worth the paper it is written
on.”
It is important to consider whether the
paperwork is effective. Fitzsimons says:
“Consider, for example, the accident
reporting form. It is common to include a
box for suggestions on how to avoid that
sort of incident happening
again, but what happens to
those suggestions Can you
prove they are acted on, or do
they just sit in a dusty file
somewhere Comments here
can also prejudice the ability to
defend claims.”
HR processes
It’s vital to revisit training and
human resources processes. It
is worth breaking down
induction and training, to make
sure there aren’t any gaps in training and
that employees are learning the right things
at the right time. As well as looking at
operational management, the paper trail
here must also be watertight. Even the
recruitment process must be considered.
So, for example, does the job application
form have a question to ensure early
identification of those who may be more
susceptible to injury, to ensure they have
the right support and working conditions
Risk management also means putting
broader health and well-being support
under the microscope. An organisation
may have a workplace health professional,
or run confidential helplines. It is vital to
assess how these are being used.
The working environment should also
be considered, including the building and
the activities of employees. It is important
to weigh up not just whether legislation is
properly being adhered to, but also that
inspection and maintenance
documentation is of the highest standard.
Finally, it is worth revisiting the claims
experience to see why claims are arising
and what can be done to reduce their
number or cost. An in-depth examination
requires attention and resources and it is
worth analysing not only claims, but near
misses and notifications. However, front
loading the process is simpler and more
cost-effective than if a failure causes a
major incident, so it is well worth
addressing before it is too late.
To find out more about
our claims defensibility
audit service contact Jon Fitzsimons
on 020 7558 3240 or
Jon_Fitzsimons@echelonccl.com
www.jltgroup.com 9

Focus on
Food and drink
It’s a tough climate for food and drink companies, but one where the
right insurance cover will help businesses take the pressure.
Food and drink manufacturers are
facing testing times, explains Ian
Edwards, a Partner in Jardine Lloyd
Thompson’s Food and Drink
practice. They are under pressure from the
rising prices of commodities, increased
property and credit risks in a harsher
economic climate, demands from
supermarkets to cover product recall risk
and everyday health and safety challenges.
This is having an impact on their insurance
needs and costs.
Stock insurance
The biggest issue now is the wide range of
impacts stemming from ferocious
commodity price rises. The price of wheat
on the global market rocketed after a
severe drought in Russia prompted a ban
on exporting wheat. Cocoa and sugar have
also suffered from price volatility and a
poor harvest in the UK has been blamed
for rising food costs. This affects
profitability for food producers, but also
has an impact on insurance.
“Consider how insurance will respond if
a food manufacturer suffers a disastrous
loss of stock,” notes Edwards. Replacing a
warehouse full of wheat lost in a fire, for
example, will cost a great deal more now
than a few months ago, he warns.
Companies need to factor this in and
monitor their stock insurance values
against the external cost of replacing the
goods.
Stock insurance
must be revisited after
commodity price rises.
A good risk profile will ensure
competitive property insurance.
Product recall is increasingly
common.
Health and safety communication
is key.
Now could be the time to revisit
credit insurance.
Property insurance
Added to this food and drink
manufacturers have a range of traditional
risks to consider whose profile may have
changed since the onset of the recession.
Property insurance, for example, is
sometimes a headache for food producers.
“Cover is generally easy to access for those
companies with good risk profiles but less
sophisticated businesses may find it harder
to obtain the right insurance,” explains
Edwards. Insurers say that they pay out on
average twice as much in claims as they
earn in premiums on property insurance
for the food industry.
Risk management
Figures are hard to come by, but anecdotal
evidence over the last five years suggests
that property insurance claims amounted to
around £1.2 billion. Consequently, “the
quality of risk management at food
factories is a key consideration for
underwriters,” says Edwards. Well riskmanaged
food producers will find the
market far more competitive, he says.
Edwards advises companies to work
closely with their insurers and brokers to
work out what needs to be done to improve
their risk profile.
Among the steps that can be taken is
allowing full access to the site so insurers
can judge for themselves. Businesses
should also be clear about the exact
construction of manufacturing facilities or
insurers will assume the worst. Where
there are renovation plans, they should ask
for the insurer’s input and make sure LPCapproved
composite panels and panel
installation systems are adopted: all of
which will improve the risk profile.
Product recall
In other lines, the restrictive nature of
product recall insurance means that often
food producers do not take out the cover.
Edwards estimates that only about 10 per
cent of food producers have product recall
insurance. But some supermarkets are
pressuring food makers to insure against
the risk. Big manufacturers can sometimes
afford to take the hit from a product recall,
but middle market sized companies (with
Cover is
generally easy
to access
for those
companies
with good risk
profiles.
Ian Edwards, Partner,
Jardine Lloyd Thompson
fewer product lines) are more exposed to
insolvency in the event of a recall, warns
Edwards.
Health and safety
Furthermore, the diverse nature of the
workforce in the food manufacturing
industry means that getting the health and
safety message across can
sometimes be hard. Workers in
food factories often come from a
variety of cultural and ethnic
backgrounds and this introduces
language and communication
barriers. The first tip, says
Edwards, is to “understand your
workforce”. Having a health and
safety champion for each ethnic
group represented can help to
get the message across. It’s also
worth bearing in mind language
issues when designing signs.
Visual images and symbols may be easier
for workers to understand, he says.
Credit insurance
Credit insurance is another big issue for
food manufacturers. In the current climate
it can be hard for some to get hold of the
right cover. After the withdrawal of several
major players in the wake of the credit
crisis there are now signs that the market is
improving, says Edwards. Now could be
the time to begin inquiries with the market,
he says. “Speaking with a specialist food
industry broker who understand all these
issues will help.”
For more information on the
Food and Drink practice visit
www.jltgroup.com/Food-and-Drink-
Insurance or contact Ian Edwards on 0121
626 7804 or Ian_Edwards@jltgroup.com
10 Whiteboard / December 2010

About JLT
Jardine Lloyd Thompson Limited
(JLT) is the largest member of
Jardine Lloyd Thompson Group
plc, a company listed on the
FTSE 250 index of the London Stock
Exchange. The Jardine Lloyd Thompson
Group is a risk management adviser,
insurance and reinsurance broker and
provider of employee benefit
administration services and consultancy
advice.
JLT provide market leading industry
knowledge and expertise in specialist
fields to some of the world’s largest
companies. What sets us apart is the
quality of our people and the
environment we have created. It allows
individuals to work together as a
cohesive and focused team without
internal boundaries, promoting personal
accountability and responsibility for the
benefit of our clients and other
stakeholders.
Our Regional Partnership practice
provides risk and insurance services for
mid to large corporate clients. Clients
benefit from a blend of deep sector
knowledge and technical expertise,
coupled with the ability to translate
options and recommendations into a
clear and easy to understand language.
We have offices located in
Birmingham, Leeds, Liverpool, London,
Maidenhead, Manchester and
Southampton. This means we have an
in-depth understanding of regional
issues and clients benefit from informed
advice and support on their doorstep.
This local service is backed up by
additional expertise at the centre ... a
unique combination that guarantees best
in class solutions.
Jardine Lloyd Thompson Limited
Global specialty insurance broking and risk management services
Energy & Marine
Energy
• Upstream and
downstream energy
including oil and gas,
power and
renewables
Marine
• Shipowners and
operators
• Ship builders
• P&I Clubs
• Ports and terminals
Construction
& Real Estate
• UK and European
contractors
• Major power, civil
engineering, building,
infrastructure and
PPP projects
• Real Estate investors,
managers and
developers
Financial Risks
• Financial and
professional services
• Managerial liability
• Credit, political and
security risks
• Sport and
entertainment
• Accident and
specialty
Regional
Partnership
Birmingham
Leeds
Liverpool
London
Maidenhead
Manchester
Southampton
• UK mid market /
corporate
• Corporate recovery
risks
Global Risk
Solutions
• General retail
- Large corporate
• ERM and supply
chain risk consulting
• Global Service Team
Industry practices
• Leisure
• Utilities
• Communications,
technology and media
• Life science and
specialty
• Chemicals and food
and drink
• Transport and
engineering
Claims
Specialist claims service
for clients and
incorporating our
specialist claims
consultancy Echelon
Claims Consultants
Limited
Contact details
Warren Downey
Managing Director - Regional Partnership Division
London. T: 020 7528 4000
Stuart Winter
Operations London. T: 020 7528 4000
Alan Percival
National Client Service Birmingham. T: 0121 633 3377
Ian Scott
National Sales Leeds. T: 0113 203 5800
Adrian Lamasz
Birmingham. T: 0121 633 3377
Charles Wenborn
Leeds. T: 0113 203 5800
Ged Smith
Manchester & Liverpool. T: 0161 957 8000
Tom Cowdrill
Southampton & Maidenhead T: 023 8037 4890
James Roberts
Strategic Development London. T: 020 7528 4658
www.jltgroup.com 11

andfinally...
Report on health and safety
Lord Young published his report Common
Sense, Common Safety into health and
safety laws and the compensation culture,
in October.
It identified steps to influence the
perceived compensation culture and made
recommendations to reduce the burden of
red tape for businesses with low hazard
environments. It mentioned the
overcautious approach often taken by health
and safety consultants, who Lord Young
will seek to regulate.
Jamie Fitzroy, a Consultant with JLT
Risk Consultancy, says: “Poor advice led
some businesses to become too risk averse
and try to eliminate all risk through overcautious
controls. Advice from experienced
and qualified personnel helps.”
The government is considering
consolidating legislation. However some
believe this is unlikely, as parliament is
already behind in implementing several
Life sciences product liability pitfalls
Jardine Lloyd Thompson warns that product liability
insurance programmes for life science companies
may not perform as intended.
Wordings for life science companies often leave
scope for legal interpretation, differing claims
triggers can result in claims falling into different
policy years and variations of wording can cause
different outcomes.
James Bird, a Partner in the Life Science Industry
Practice at Jardine Lloyd Thompson says: “At best
it can mean a delay in a claim payment, perhaps
arbitration if the claim becomes adversarial. In
worst cases the level of claim recovery can be
severely compromised.”
Businesses need a
pragmatic approach to
health and safety
Law Commission recommendations for
change.
On the claims front, curtailing the
activities of claims management
companies, reducing legal costs and
simplifying the process will help reduce the
financial burden.
However, some argue that the
recommendations do not go far enough to
alter the principles of legal liability, so the
culture of liability claims may be largely
unaffected. Jon Fitzsimons, a Consultant
with Echelon Claims Consultants, says:
“Businesses will still need to adopt prudent
risk reduction and defensibility strategies to
ensure they stay focused. This should
include carrying out a benchmark review of
claims and defensibility issues, and taking
the necessary steps to improve on internal
fact gathering and reporting processes, as
well as targeting the effectiveness of
relevant documentation.”
Details of the main problems and solutions are
available in a White Paper, Product Liability
Insurance For Life Sciences Companies: Tips
for securing effective insurance cover.
Jardine Lloyd Thompson has also contributed to
the International Product Law Manual by Kluwer Law
International. It reviews the insurance environment
for life science firms, highlights the main players,
reviews procurement, identifies typical policy
wordings, and gives examples of how coverage
can be impacted if attention is not paid to detail.
Both are available to download at www.jltgroup.
com/Risk-and-Insurance/Sectors/Life-Science-and-
Chemicals/Liability.
A taxing time for high earners
On 14 October 2010, the government announced changes to the way
pension contributions will be taxed, creating an opportunity for higher
rate taxpayers to save tax.
The total that a high earner (earning £130,000 or more) could pay
into a pension tax-efficiently in 2010/2011 was limited to £20,000 in
most instances. From April 2011 this limit will be lifted, and high
earners, along with everyone else, can invest up to £50,000 into a
pension tax-efficiently each year.
Graham Cooke, Senior Consultant at JLT Wealth Management, says:
“Putting money into a pension is not entirely tax free. Tax will generally
be payable when pensions are paid. However, this is likely to be at a
much lower overall rate: usually between 15 per cent and 37.5 per
cent based on current rates.”
This creates tax planning opportunities for the broader reward
package. So, for example, a bonus could be sacrificed, and in return a
pension contribution could be made, meaning there would be no tax or
National Insurance to pay on it; as long as it remained below £50,000.
Cooke says: “Employers should consider providing employee access to
advice. Employers can provide the initial education and then employees
can choose to have more in-depth financial support that they pay for
themselves.”
For more information contact Graham Cooke
at Graham_Cooke@jltgroup.com.
A new era for the JLT
International Network
The JLT International Network
has launched a new partnership
model, to enhance its capabilities
and offer a new way to service
multinational clients.
In July the broker entered
into exclusive agreements with
three leading European brokers,
SIACI SAINT HONORE,
GrECo and Ecclesia, reinforced
by service agreements and cross
Rory MacLeay and Mark
Drummond-Brady
shareholdings. The network can service clients in over 135
countries, with expertise in emerging and mature markets
and it will serve as the model to bring existing network
members on board as partners. “The network partnerships
operate like a single solution, with all the benefits and
flexibility associated with independent brokers,” says Rory
MacLeay, Managing Director of the JLT International
Network.
“We can improve the capabilities of all partners through
close collaboration and the exchange of knowledge,
expertise and people,” says Mark Drummond-Brady,
International Chairman of Risk and Insurance for the group.
As the JLT International Network continues to grow, it
will have advantages over alternatives offered by other
brokers, says MacLeay, including access to the products
and services of leading brokers in key territories. “They
will also benefit from a shared culture of innovation and
the flexible approach typified by independent brokers.”
12 Whiteboard / December 2010