Grenfell fire highlights underinsurance from single casualty events

Following the major fire at Grenfell Tower in North Kensington, west London, casualty accumulations and casualty losses have come right into the focus of casualty re/insurers and the assessment shows that commercial clients are not buying enough liability limits.

This is according to John Pilkington, executive underwriter at Ascot Underwriting, who spoke at a panel on casualty modelling at the June 22 Verisk Risk Symposium in London.

The London tower block has been devastated by fire on Wednesday June 14 and killed at least 79 people. Norway’s Protector Forsikring confirmed it is the insurer of the building, but that all its property claims in UK and in the Nordic market are covered by Munich Re.

One of the issues that Pilkington believes the industry faces coming out of events like the Grenfell fire is underinsurance. He explained that entities and businesses are not currently buying insurance to value.

“In general, we are dealing with underinsurance, we’ve seen this with the global financial crisis, the investment banks not buying enough limit,” he said.

“We’re going to see it with the Grenfell fire, where they have not bought enough liability limits.”

Early estimates for the costs to insurer from the Grenfell Tower fire range from £200 million to £1 billion and the case is deemed to be one of the most complex payouts for the industry.

From Pilkinson’s perspective, he prefers the primary defendant to be a big corporation who has either big financial resources or a big insurance tower, so then the claim doesn’t turn into a derivative matter, where they’re going down the chain to tap insurance limits.

“Years and years ago, if that fire would have happened, they would have gone to two or three parties, because the limits may have been sufficient to cover the liability element of the loss. But the loss from the other day, the limits aren’t big enough so they will go deeper and deeper to tap limits.”

From Wilkinson’s perspective as a reinsurer, this turns that loss potentially to even a bigger loss. “We may not for example, insure or reinsure anybody who provides the liability limit to Kensington and Chelsea Council. But we may reinsure somebody who provides the architect and engineers’ insurance policy.”

With the Grenfell fire, Wilkinson explained that there will be a lot of policies tapped on that. And depending on whether it’s convenient for that particular insurer, they’ll either want to call it one loss or multiple losses.

He also pointed to recent news that 600 building have the same defective, flammable cladding, which could be a common tort loss, bringing all the builders, architects and manufacturers in scope.

“Depending how broad that event definition is, it could bring a lot of different interests in insurers into focus,” he said.

Rather than fearing a single emerging risk such as asbestos or potentially fracking, Pilkington suggested casualty re/insurers should be concerned about the whole slew of single catastrophe events such as the Grenfell fire, the Husky Energy pipeline spill into the North Saskatchewan River, or the capsizing of Italian cruise ship Costa Concordia.

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