Several months before renewing its insurance coverage, a Marsh brokerage client, one of the nation’s leading financial institutions, released a request for proposal (RFP) for more appropriate coverage. Eager to retain the brokerage business, Marsh met with the client to ascertain its goals regarding the renewal.

The client’s top three goals were increasing its business interruption (BI) coverage, increasing its extra expense (EE) coverage, and lowering its premium. At the time, the client carried $50 million in both BI and EE and determined that $250 million limits for each would be more appropriate.

The Challenge

Placing property damage insurance coverage for financial institutions is fairly straightforward, as the main components are buildings and computers. However, calculating the appropriate amount of business interruption and extra expense coverage is much more complex.

Adequately quantifying the loss of earnings when a financial institution loses a building is as much art as science, often making underwriters uncomfortable as they may not have a high degree of certainty regarding the extent of the true exposure. Unlike an auto manufacturer that is unable to produce vehicles when a building housing a production line is destroyed, a financial institution continues to receive a large percentage of its annual revenue even if a facility is lost. Determining the percentage of revenue lost due to a property loss is the crucial point when obtaining appropriate BI and EE coverage.  

The Solution

To help the client meet its goals, Marsh enlisted its FACS practice to identify a new process to more accurately quantify the anticipated lost revenue while increasing the insurer’s comfort level relative to BI and EE exposures and coverage. Confident after FACS’ successful engagements for financial institutions after 9/11, Marsh underscored its commitment to meet all three of the client’s renewal goals by putting our compensation “at risk.” With the provision that the client’s key business owners would be completely accessible to the team, FACS accepted the challenge.

For this engagement, FACS and the client defined key businesses as those with revenue contributions of 15% and higher. With four weeks to complete the engagement, the team met with key business line CFOs to identify, locate, and analyze the necessary data.

The Marsh team met the client’s deadline and provided a detailed report to the insurer, helping the client obtain its desired BI and EE coverage limits ($250 million each), a 20% premium savings, and an increase in its overall property insurance limit to $1 billion from $700 million.

In addition to helping the client reach its goal, Marsh was able to show its industry leadership and expertise by incorporating a similar report on a marketing CD that was distributed to insurers in the United States, Bermuda, London, and Europe. The reaction to the report was overwhelmingly positive, and as one insurer stated, “it was the best thing since sliced bread”. Insurance markets are now requesting these types of reports when reviewing BI and EE placement opportunities for other financial institutions.