Y2K – you’d better be ready

Insurance companies were warned that the deadline for Y2K is nearly here, for both internal company systems and external coverage policies. At a morning session addressing all aspects of Y2K, TRAC Insurance Services Ltd. general manager Joel Baker revealed results from TRAC’s end of 1998 Y2K readiness survey. “Based on the data, I maintain that a significant minority of companies will suffer some serious operational difficulties in the first few weeks of next year,” he concludes.

Most alarming is the answers companies reported on contingency planning. Five of the top 50 p&c insurers admit they do not have, nor are they planning to, develop a contingency plan in the effect of a system breakdown, Baker reveals. “I’m sure OFSI would have something to say to these companies,” he adds. Nine of the top 50 companies did not answer the question. “I perceive the existence of such plans are an essential element in Y2K preparedness. Any absence should raise some concerns,” he warns.

Insurers also have plenty of coverage questions to consider, says Frank Palmay, partner at law firm Lang Michener. “Every insurer should have a class action contingency plan ready. The duty-to-defend clause that exists in many directors & officers liability plans could pull insurers into cases they don’t want to be in,” he says. He adds insurers that have an interest in maintaining a relationship with a client while avoiding covering their Y2K liabilities should seek out alternative dispute resolution before next year. “This type of mediation has been very successful in similar scenarios where a relationship is expected to continue,” he says.

Everybody, including insurers and lawyers, are watching the clock on Y2K. “Not since Cinderella has there been so much watching of the clock turning twelve,” Palmay jokes. Bernie Webber, president of the Insurance Information Centre of Canada, counters the industry should not be overly alarmed by Y2K, that most companies have indicated appropriate Y2K readiness. “Without trying to minimize the consequences of a single failure to a particular company, the risk to the entire industry on a whole is minimal,” he says.

Nevertheless, Y2K and the coverage question still promises to become a sore spot for the industry, says Mary O’Reilly, vice president of public affairs at the Insurance Bureau of Canada. She notes only 16% of Canadian businesses have asked insurers about Y2K coverage, and 24% of Canadian companies have not yet begun plans to become compliant. Also, 43% of insureds say they would be angry if they submitted an unaccepted Y2K claim. Put these figures together and you could have some disappointed and angry insureds. “The industry is going to have to work extra hard to disseminate correct information about Y2K coverage to all of its customers before the end of the year and into the year 2000,” she maintains.