Keys in door

After the event insurance -
more than a promise

Posted: 16 February 2021

Let’s compare this to insurance products we’re all familiar with buying. For car or home insurance the contract term to which the policy operates is, in most circumstances, for 12 months. Under these types of policies, claims tend to be restricted to the period that the policy is in force and settled quickly.

This isn’t the case with ATE, where policies are in effect open ended until the legal claim has concluded. The importance of the underwriting insurer’s financial security can’t be underestimated, especially when the policy needs to be called upon many years after taking it out. For example in Clinical Negligence cases, 75% of cases can take up to four years to settle one way or the other (win or lose).  

Whilst some cases, such as Road Traffic Accident (RTA) personal injury cases generally settle much quicker, each claim is very unique and the solicitor must have confidence in recommending products to clients that are capable of providing continued protection for the life of the claim, no matter how long this may take.

The importance of due diligence has been demonstrated in the market with previous instances of insolvency affecting ATE insurance providers. In a recent case, the insurer stopped writing new business in 2017 confident at the time of a ‘solvent’ run-off. Whilst they couldn’t meet their required solvency margin they were convinced that they had more than enough capital to pay claims, however this created uncertainty on whether claims would be paid. As a result, solicitors who provided the products were unable to take out new or replacement policies as the provider was relying on premiums for successful cases to pay claims. 

In December last year, the provider announced that all ongoing policies would be ‘disclaimed’, so no further claims would be paid. After three years of uncertainty this left the solicitors with the unenviable task of finding new and replacement policies. This would undoubtedly  take some considerable time and effort to find a new insurer prepared to take on the historic financial exposure as cover would need to be backdated to provide clients with full protection. 

In times of uncertainty it’s therefore crucial for solicitors to do the necessary due diligence on ATE insurance providers to understand where their capital is coming from, as well as their background and credentials. Some key areas for solicitors to consider during this process include:

Most companies are rated by credit rating agencies or solicitors can look at a provider’s financial results and solvency margins over a number of years. This may also include asking difficult questions such as the ATE insurance provider’s financial ability to withstand current issues like Covid-19 or Brexit.
Many providers don’t just provide ATE insurance so may be less inclined to support what might be considered ‘niche’ types of business, particularly in difficult times. Also if the provider isn’t an insurer then it’s reliant on others for underwriting capacity, in which case it would be useful to know where this capacity is coming from. 
Solicitors can ask the ATE insurance provider to demonstrate its underwriting expertise and market credentials. It’s important for solicitors to challenge providers so they can establish a relationship built on trust.

Ultimately, solicitors act in the best interests of their customers and it’s usually through a solicitor’s recommendation that customers will take out ATE insurance. So quite rightly, the recommendation needs to live up to the expectations of the customer in providing value.
Tony Dyas
Senior Business Developer
Allianz Legal Protection