LONDON, 8 September 2008 - London's leading accountancy firms could end up overpaying for gold dust office space by underestimating the impact of a terrorist attack or flood on the City and failing to prepare. According to the global insurance broker Aon, firms need to grasp the true costs of responding to an incident and build these into business interruption (BI) insurance cover and continuity plans. 

The Government's National Risk Register has identified pandemic flu as the highest risk, but City firms also face the threat of terrorist attacks, floods through being situated in a hotspot by the inadequate Thames Barrier and more traditional fire risks. Any one of these incidents would cause disruption to employees, business processes and most importantly, service to clients.

Despite strong disaster planning, many accountancy firms are failing to consider their responsibilities over the subsequent period to ensure the business starts running smoothly again. One of the key factors for eroding profits will be the increased costs of premium office space if a terrorist attack, for example, leads to several companies looking to relocate. These costs will be covered under a business interruption insurance policy but Aon is warning that the standard 12 month indemnity period may be insufficient. 

As rent eats into income, accountancies could also face other costs such as penalties for delays in transactions during M&A activity. However, this is insurable by extension to a BI policy.

Aon is advising firms to protect their income by taking the following actions to prepare for a disaster:

1. use a risk register to identify, assess and monitor the risks facing your business;
2. set objectives to undertake measures to ensure that the severity or impact of the identified risks is reduced within an agreed timeframe;
3. assess the appropriate amount of insurance cover for business interruption stemming from the identified risks;
4. consider increasing your indemnity period from 12 to at least 18 months
5. when the insured needs to incur uneconomic costs, an extension for additional increased cost of working is recommended for the policy. Standard gross revenue/profits insurance includes increased costs of operations but only up to an economic limit i.e. insurers will only pay £1 if it avoids a reduction in revenue of £1.

James Leow, senior consultant at Aon Global Risk Consulting, commented: "Securing an effective business interruption insurance policy goes hand in hand with having a clear and practical business continuity plan. Striking this balance will provide firms with the necessary support so they can continue to effectively carry out their core business. Even if firms have business continuity plans, they are often focused on minimising the impact of an accident instead of strengthening the plans with other pro-active measures, such as restoring their IT and finding alternative office space. These will help firms to fully recover their business operation in the most efficient, cost effective and practical way."   

"More positively, every risk should present an element of opportunity. As such, companies should look at continuity planning as a trigger to achieve potential premium savings through improving their current mitigation controls and building upon their relationship with their underwriters." 

Ends

For more information contact:
Alexandra Lewis
0207 882 0541
Alexandra.lewis@aon.co.uk
http://aon.mediaroom.com

About Aon
Aon Corporation (NYSE: AOC) is the leading global provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting. Through its 36,000 colleagues worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Our industry-leading global resources, technical expertise and industry knowledge are delivered locally through more than 500 offices in more than 120 countries. Aon was named the world's best broker by Euromoney magazine's 2008 Insurance Survey. In 2008, Aon ranked highest on the Business Insurance ranking of the world's largest insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues. Aon also was ranked by A.M. Best as the number one insurance broker based on brokerage revenues in 2007 and 2008, and was voted best insurance intermediary, best reinsurance intermediary, and best employee benefits consulting firm in 2007 and 2008 by the readers of Business Insurance. For more information on Aon, log onto http://www.aon.com/.

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