The Hours Clause: 4 Steps Insurance Companies Should Take to Evaluate Exposure

Craig Robinson
Reinsurance Sales Engineer
StoneRiver

2012 was certainly a big year for catastrophes, suffering through hurricanes Sandy and Isaac, as well as several thunderstorms, fires, earthquakes, tropical storms, and droughts. These worldwide catastrophes caused lots of loss activity and economic destruction. Any time there is a long duration for any particular catastrophe, it is difficult to figure out what to report to reinsurers. In many reinsurance arrangements there is an hours clause that can have great bearing on the loss amount that can be invoiced to a reinsurer for recovery.

First, let’s understand the hours clause. As defined by the Glossary of Reinsurance Terms by Guy Carpenter, the hours clause is:

“The term which limits the time period during which claims resulting from a given occurrence may be included as part of the loss subject to the cover. The time period is usually measured in consecutive hours and often applies to property reinsurance, e.g., a windstorm, conflagration, or earthquake, and less frequently in occupational disease and other aspects of casualty.”

Here are 4 steps insurance companies can take to evaluate their exposure:

  1. Consider whether the set of reinsurance arrangements in place has an hours clause
  2. Know whether they are allowed to identify more than one occurrence for the same catastrophe
  3. Know the length of an occurrence due to a catastrophe
  4. Look at when the first loss they received occurred in order to figure out the most beneficial time period involved with the catastrophe so they can recover the maximum allowable by the reinsurance agreement

Download a short thought leadership article to learn more about how to take advantage of the Hours Clause.

Or see how StoneRiver’s URS® Reinsurance System can help automate all aspects of administration.

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