It's 1999 . . .

Do You Know Where Your Insurance Policies Are?

Beware: 9/9/99 is a Common Document Destruction Date

In recent years, companies of all sizes have increasingly recognized that an audit of past and present insurance policies is an essential "best practice" of risk management. With legal liablilties taking up an even larger proportion of any company's risk profile, managing the insurance portfolio has become as essential as managing expenses, revenue or investments.

Two current factors add urgency to the task. One is the rapid consolidation of insurance brokerages in recent years. The second factor is even more time sensitive: a dcoument-destruction time bomb scheduled for Y99.

Millennial Math: 9/9/99 = 0
When it comes to records recovery, Y2K's shadow streches forward into this year. In corporations throughout the U.S., 1999 has long been the most popular year, and 9/9/99 the most popular date, to mark records for destruction. Since the 1960's, multiple nines have served as "null value" codes in the date fields of many documents management programs--and many human minds seem to have taken the cue, choosing 1999 as a once-comfortably-distant scheduled destruction date. In their daily work, insurance archaeologists encounter this millennial time bomb in page after page of records management indices in virtually every industry - - including the insurance industry. A true crisis thus looms in records retention. Now more than ever, to postpone research of historic insurance records may mean consigning valuable coverage to oblivion.

Where Have All the Brokers Gone?
In the past, companies seeking to reconstruct their insurance histories when their own document record was incomplete could rely heavily on brokers who had sold them the policies.

Today, a decade’s worth of consolidation in the insurance brokerage industry means that brokers themselves can be almost as hard to trace as insurance policies. Not only have the top ten brokers of ten years ago combined into a “big three” (New York-based Marsh & McLennan, Chicago-based Aon Risk Services, and Willis Corroon Group of London), but one out of every three agencies with revenues of more than $5 million, acquired another agency in the past year. Since many of the smaller brokerages are run by aging partners, small acquisitions often trigger the retirement of brokers with decades of memory and records. Moreover, brokerages themselves, like insurance companies, may have documents earmarked for 1999 destruction. Thus the traditional fallback for companies with missing or destroyed records may itself fall away.

Preventing Corporate Memory Loss
Fortunately, an insurance audit conducted internally, with common sense as guide and thoroughness as guiding principal, may forestall “Y99” damage and recover lost policies.

Even a relatively cursory check of existing records may yield rich results. Often, policies that are not on any lists can be found simply by pulling and organizing the existing insurance records. This simple, surface-level audit may add millions to the pool of available coverage. Inquiring into the insurance history of predecessor companies and acquired companies will likely also uncover usable policies.

Conversely, the surface audit may reveal unexpected gaps in documentation. Policies, as well as endorsements which increase limits and extend coverage, may not actually be in the files when the back-up documentation for the policy lists is examined. If such is the case, contact brokers immediately to clarify coverage and obtain missing documentation. If the brokers cannot plug the gaps, it’s time to dig deeper.

The Internal Insurance Audit
A more thoroughgoing insurance audit involves the following steps:

• Identify all relevant internal records, encompassing all types of coverage the company may have acquired over time, as well as relevant non-insurance records (e.g., accounting records, which often list insurance policy numbers).
• If you lack resources to review these records, make sure you preserve them, overriding any destruction schedules.
• To plug gaps in the record, contact former and current brokers and request copies of any missing or incomplete policies. Of course, in this era of consolidation, locating a former broker can be a search in itself.
• Contact relevant outside sources, e.g., additional insureds, outside counsel, and government entities such as the National Archives, various military departments, and municipalities.

The internal audit may fulfill, wholly or in part, three key objectives: preserving records scheduled for imminent destruction, identifying key gaps in your company’s insurance record, and locating forgotten policies.

If the “inside job” reveals extensive gaps in the insurance records, it may be time to call in an insurance archaeology specialist to conduct more extensive research. Insurance archaeologists have their own set of tools for recovering lost policies, amassing secondary evidence of others, and organizing records for scores of policies in a coherent format. Specialized databases and graphics will then allow the entire insurance portfolio to be understood at a glance, down to the most complex details.

Remember, yesterday’s recovered CGL policy may prove to be as valuable to your company as today’s hot acquisition -- especially if today’s hot acquisition proves to have its share of skeletons in the closet. Given the host of current business conditions that erode corporate memory — merger mania, broker consolidation, and document destruction schedules that will detonate in a few months - the insurance audit is a crucial defense against unforeseen liabilities.