While insurers have done a great job ensuring their firms' computer systems are Year 2000 compliant, many have not done nearly as good a job from a coverage, underwriting or claims perspective.

That was the viewpoint given to lawyers at the Eagle International Associates Conference in New York from a Towers Perrin management consultant.

Consultant Phil Miller said a wide range of claims could result from Y2K (Millennium Bug) problems, including the cost of correction before or after failure has occurred, or after a compliance order from regulatory bodies like the FDIC or the SEC.

He said, "If insurance companies want a good outcome on Y2K issues, they need to control their own destiny. Wishing won't make it so.'' Loss of value in a company's stock, damage to the business of a client, and bodily injury or property damage resulting from a Y2K computer failure all could generate claims.

There could be business interruption claims due to a partial or total shutdown. Claims can also arise due to the insured's direct failure or from the failure of a service provider.

Mr. Miller said, "These developments can have implications for general liability, business interruption, property, errors & omissions and directors & officers policies.

"Policy years that could be involved could include January 1, 2000 or at a later date when a loss is incurred, or it could be argued that it is at the time the programme code was written and installed, or during the continuous time between the two dates.

"Policy years also might be implicated based on the time insureds should have known about the problem or at the time they began to implement a flawed remediation programme.'' Attorneys for insurers and underwriters and claims personnel should examine each policy and claim type to determine whether a loss should be considered a covered event.

"You need to consider,'' said Mr. Miller, "whether your answer would be the same if the insured experienced the problem despite its own good faith effort to correct the problem or whether it failed to take reasonable corrective action.

"There will undoubtedly be cases where the insured had its own house in order but failure occurred solely due to a service provider.'' He continued, "The specifics of each company's policy language and exclusions need to be considered. To bolster the case for situations not covered, insurers can send out advance notice to their clients, offer coverage for defence costs, offer low limits coverage at an additional price, or implement exclusionary language.'' Mr. Miller said that in order to minimise losses, insurers should focus on identifying insureds with the worst potential losses if they were to have a loss.

He also suggested identifying the types of insureds with the greatest likelihood of not being ready on time or having Y2K failures. He advocated combining both to identify riskier classes.

He said, "Companies should survey insureds on the state of their Y2K awareness and readiness and decide what to do with the information prior to sending it. They should underwrite the risk by non-renewing where appropriate, using lower limits or higher deductibles, or tailored exclusions.

"An insurer who relies on the survey responses in its underwriting should review the truthfulness of responses when and if claims arise.'' The consultant accepts that insurers are generally prepared in a technical sense, but believes many have approached insurance issues too simplistically.

He said some losses would be covered, while others will not. The risks can be identified and managed and the losses can be minimised.