5 Steps to Maximise Recoveries
Georgina Fenton – Political Risk & Credit
“Without recoveries, the class doesn’t work”. A leading insurer hits the nail on the head.
Although claims data is widely published for the class, that is not the case for the subsequent recoveries. This information is not circulated and openly discussed in the same way, despite being such a crucial aspect of Political Risk and Trade Credit insurance.
Willis Towers Watson’s Political Risk Survey and Report for 2021 for the first time asked insurers about the proportion of political risk losses they had been able to recover. Surprisingly, a third of respondents did not measure how much had been recovered across their portfolios. Of those reporting a figure, they found a U distribution: 39% were only able to recover a quarter or less of their financial loss, while 22% were able to recover more than half.
Our “back of the envelope” survey of insurers’ approach to recoveries ranges from running a zero-loss book, to management at other carriers not expecting recoveries so they are seen as a nice surprise when they happen. Typically though, we hear of recoveries coming back at only 25-30% of the claims paid out.
Debts recovered can range from USD1 million to in excess of USD100million, and it is clear that claims are pursued and achieved in many instances. With so much at stake, how do you avoid throwing good money after bad?
In our experience, securing the best chance of recovering the greatest sums comes down to five main points:
- Act fast
- Forge a relationship with the insured
- Think creatively
- Be patient
- Know when to hold on and when to cut your losses.
Time is of the essence. The nature of claims in this class, and the impact of waiting periods in particular, means that recoveries are often only actively pursued a considerable time after the event. As a result, some of the best opportunities have evaporated long before a claim has been settled; assets often disappear if no action is taken to secure them.
One big player changed strategy and saw enormous dividends; they turned around a very bad track record of recoveries, by implementing a policy of instructing specialist advisers to work in the background within 24 to 48 hours of notification of a claim.
At ASL this is a subject which is at the front of our mind, from the very beginning of our involvement in a claim. Prior to payment of a claim, it is sometimes necessary to work in the background initially to preserve assets and put insurers in the best possible position after settlement.
Forge a relationship with the insured
When the ink has dried on a settlement agreement, and an insured has returned to BAU, how do you maintain their engagement and investment of management time to help an insurer recover funds?
The insured may still have an interest in a portion of the recoveries. In addition, our language capabilities and cultural understanding gained from doing business all over the world helps us to forge a strong relationship with insureds so we can leverage that engagement to recover optimum funds for insurers. In normal circumstances, we would jump on a plane and meet an insured face-to-face. Even in Covid-world, regular online meetings have helped to build foundations.
Providing redacted reports to brokers and insureds also helps to demonstrate that the adjustment process is transparent and further fosters a relationship of collaboration.
The Berne Union 2019 industry report found that in Medium and Long-Term Export Credit and Other Cross-Border Credit business, 50% of total recoveries were concentrated in 5 countries, all in the Americas: Mexico, Argentina, USA, Brazil and Colombia. With our 7 fluent/native Spanish and Portuguese speakers, we are especially well placed to help maximise these opportunities.
Many insurers we have spoken to pride themselves on taking a proactive approach, working with insureds to pursue recoveries.
Insurers have also told us that it’s sometimes not just about the money; certain recoveries are worth pursuing as a deterrent.
Our relationships with local parties can be key in executing creative solutions; in one colourful claim in the Democratic Republic of Congo, we employed a former police officer to trace cash before it was dissipated and the majority of the funds were recovered. We achieved this by working closely with the insured, local broker and insurers to ensure decisions could be taken quickly and all bases were covered.
We can draw on our wide network to identify the most appropriate organisation to assist – be that lawyers, local agents or specialist investigators. Other opportunities are to be found in selling a paid claim in the secondary debt market.
Some insurers we have spoken to have big books of subrogated claims originating as far back as 2007/2008. In many overseas jurisdictions, such as parts of Latin America, litigated claims can easily take in excess of 10 years to run their course. However, it can be worth hanging-in there.
Know when to hold on and when to cut your losses
Time and money spent on research is never wasted. Weighing the circumstances and judging the timing are critical, and these decisions depend on obtaining and assessing as much information as possible.
Our experience, and connections with trusted local advisers, will help you identify when to stick and when not to. Our Dubai office and Middle East presence can be particularly helpful. In other countries, such as in Russia and parts of Africa and Latin America, we have worked closely with agents and can help to de-mystify the systems and explain how things work in practice – rather than on paper.
In conclusion, if you follow the clues there can be real rewards to be found. Please let us know if you would like to hear more about our experience of recoveries in different sectors and areas of the world.