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LONDON-British insurers have introduced more exclusion clauses for Year 2000-related computer problems, though they argue this represents no withdrawal of coverage but a confirmation that such risks were never intended to be covered under standard commercial policies.
The Assn. of British Insurers last week issued draft exclusion clauses for Year 2000-related product liability and professional indemnity claims, having previously issued sample draft exclusions for business interruption and property damage claims.
Some major insurers already have said they will incorporate the clauses in their policies.
The clauses recommend wordings for the exclusion of Year 2000-related problems to computer equipment; liability, including employers liability, public/product liability, legal defense costs and financial loss; professional indemnity; machinery loss; and for directors and officers liability.
The model clause recommended by the ABI is an exclusion for, in part: "Damage or consequential loss directly or indirectly caused by or consisting of or arising from the failure of any computer, data processing equipment or media, microchip, integrated circuit or similar device or any computer software, whether the property of the insured or not, and whether occurring before, during or after the year 2000."
Two of the United Kingdom's largest insurers, Royal & Sun Alliance Insurance Group P.L.C. and Guardian Royal Exchange P.L.C., have said they will introduce the clauses into commercial policies.
Other major insurers have yet to decide on the clauses but expect to reach a decision by year end. These include London-based Commercial Union P.L.C. and Perth, Scotland-based General Accident Fire & Life Assurance Corp. P.L.C.
Britain's risk managers are unhappy that the clauses will exclude Year 2000 risks from general insurance policies. The Assn. of Insurance & Risk Managers called upon individual insurance companies "to come clean" and finally "provide a clear and definite statement for policyholders."
AIRMIC Vice Chairman David Ketley said the insurance industry has had two years to decide how it will handle the Year 2000 problem, "but risk managers and insurance buyers are still no wiser as to what will happen and cannot plan for the future with any certainty."
He cited a number of uncertainties, including that risk managers do not yet know which insurers will use the exclusion clauses or how they will be interpreted, and apparent disparity of views on how strictly the clauses will be applied.
Mr. Ketley cited as an example the failure of a commercial sprinkler system and the uncertainty now whether an insurer would say this is a Year 2000 exclusion and that any fire damage is not covered.
Product liability coverage is another worry, he said. If someone suffers loss because of product defect, such as an escalator stopping suddenly, and that defect can be traced to a Year 2000 problem, it is unclear whether the insurer would indemnify, he maintained.
"We're not asking insurers to give additional cover. What we want is to ensure they continue with the cover they're giving at the moment," he stated.
Also last week, the ABI joined with the U.K. Department of Trade and Industry in launching a campaign to impress upon businesses the importance of taking action to deal with the Year 2000 threat.
They warned that the end of 1998 was probably the latest deadline for companies to complete the essential work of dealing with the millennium computer problem.
ABI Director General Mark Boleat said too many companies are failing to take precautions to ward off the year 2000 time bomb, and that "insurance is not an alternative to taking action."
Mr. Boleat warned: "Insurers cannot meet the consequences of companies not modifying their systems to take account of the known consequences of a known event. . . .Standard business policies are not designed to cover the risks associated with the change of century."
However, he added that some forms of coverage would be available if taken out in a special policy and certain conditions were met.
Such coverage will depend on policyholders taking action to ensure their business systems, as well as their suppliers' and customers' systems, are "millennium-compliant," he said.
Ironically, the DTI's participation in the awareness campaign came in the same week that Parliament learned seven out of 16 government departments have missed the government's own deadlines for tackling the millennium problem.
Malcolm Bruce, a Liberal Democrat Member of Parliament, compiled figures from written answers given in the House of Commons on behalf of the government. While the Labour government has said it could cost up to 3 billion pounds ($5.11 billion) to prepare public sector computer systems for the date change to the Year 2000, so far only 3.4 million pounds ($5.79 billion) has been spent, he said.
"At this rate, the government will not be ready for the millennium and many computer systems will fail," he warned.
Meanwhile, London-based Heath Reinsurance Broking Ltd. has developed a "spread loss cover" provided by London market underwriters for Year 2000 risks that defers the cost of the coverage, requiring a premium to be paid only if there is a claim. Stephen Hitchcock, deputy managing director of Heath's international division, explained that the policyholder pays a booking fee to reserve various levels of capacity that then can be accessed if a loss happens. At the same time, the premium is negotiated and agreed upon but is paid only when a claim is made.
So far, the broker has prepared two quotes on the policy, though Mr. Hitchcock said he expects interest to pick up next year.