Businesses warned insurers will not cover IT timebomb

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The Independent Online
British businesses were yesterday warned that they face liabilities running into tens of billions of pounds if they fail to modify computer systems in time for the millennium. Andrew Verity reports that insurers cannot cover risks associated with failure to address the problem.

Taskforce 2000, the Government-funded group tasked with raising awareness of the millennium problem, warned that the cost to companies of failing to change computer systems would be far in excess of the estimated pounds 30bn needed to fix the problem before 31 December 1999.

Robert Guenier, executive director of Taskforce 2000, said: "Businesses are now in a burning building and one by one the safety ladders are being kicked from underneath them.

"Who can blame the insurance industry for taking this firm line after finally waking up to the fact that it may face a deluge of claims for losses arising from the millennium problem."

The warning followed an announcement by the Association of British Insurers, which represents more than 95 per cent of the insurance industry, that insurers would exclude year 2000 problems from policies.

The announcement cuts off a key escape-route for companies relying on commercial insurance to pay for the risk of their systems failing as a result of millennium-related deficiencies in their microprocessors.

Any system containing date-dependent electronic parts - including security systems, lifts, escalators, air conditioning, heating, and telephone exchanges - is likely to be affected by the millennium problem. This is likely to create huge legal liabilities.

When annual commercial insurance is renewed, all ABI members will exclude year 2000 cover. The association is circulating a "model exclusion" which rules out claims on any loss caused directly or indirectly by a microchip that cannot process dates after 31 December 1999.

Insurers will place the exclusion in any new policies for commercial risks which may be associated with the millennium problem - where microchips fail to distinguish between the year 2000 and the year 1900. They argue that insurance is designed to cover an unforeseeable event whereas the millennium problem is known and foreseeable.

Because commercial insurance is usually renewed every year, few companies will be able to claim when the new exclusion takes effect.

Insurance which covers the millennium problem does exist and is offered by providers such as Minet and AIG. However, companies must pass a tough test requiring them to show they are making every effort to deal with the millennium problem to gain cover.