The Disease Liabilities Risk Management Tool, a risk methodology developed by Marsh, the world's leading insurance broker and risk adviser, has saved UK clients over £4 million in the first year since its launch. Its success was recognised through its selection as a finalist at the 2009 European Risk Management Awards held recently.

This highly effective and market-leading tool helps companies of all sizes manage the financial risk of their disease liabilities, which can pose a significant financial threat to firms. For example, over 2,100 new cases of mesothelioma are diagnosed in the UK every year and claims now regularly exceed £250,000; such claims are expected to continue to increase in frequency.

Using the Disease Liabilities Risk Management Tool, the Occupational Disease team has saved over £4 million for clients. This has been achieved by scrutinising sales and purchase agreements enabling legal liabilities to be questioned and thereby helping claims to be redirected to the appropriate company which owns the legal liabilities; by facilitating recoveries from insolvent schemes of arrangement and securing payments from the Financial Services Compensation Scheme for past legacy claims; by identifying historic insurers, enabling claims to be passed to traced insurers; and by challenging policy extensions, which has resulted in securing payments from insurers.

Developed and implemented by Marsh's Occupational Disease team, the tool's five-phased approach enables identification, assessment and mitigation of companies' risks to disease liabilities:

• Phase 1: A client's premises are visited to interview key staff and research archived information relating to insurance and corporate history.
• Phase 2: An insurance and corporate archaeology exercise to fill missing gaps from phase one and establish a complete insurance and corporate history register. This achieves historic insurance due diligence and prevents clients from funding claims due to untraced cover.
• Phase 3: In-depth review of sales and purchase agreements in order to question legal responsibilities thereby helping to prevent a client from funding claims where legal liabilities rest elsewhere. In addition, policy documents are reviewed to establish limits, exclusions and extensions.
• Phase 4: Detailed analysis of disease claims is performed, together with an in-depth audit of those claims involving an insolvent insurer. Benchmarking is undertaken to compare the company's disease claims with claims of the same nature. Rolling balances are calculated for historic insolvent insurer claims and dividend payments are recovered, where due.
• Phase 5: Risk modelling enables financial forecasts to be calculated which assists a client in determining its future cash flow requirements. A range of risk transfer options can be investigated and placed where required which frees capital and management resources.

Bill Kirkham, Managing Consultant in Marsh's Occupational Disease team, explained: "Since we launched the tool, we have worked with 18 companies and have been able to save them over £4 million in costs associated with their long-tail disease liabilities. As well as the financial benefits of the tool, clients gain significant 'peace of mind' in knowing that current and future claims can be redirected to the appropriate company or passed to the traced insurers. In addition, clients can more accurately budget for future expected claims and even achieve budget certainty, which can be of great importance to the client and stakeholders alike.

"However, many companies continue not to undertake any assessment of their long-tail liabilities until receipt of a large claim. This immediately places them at a disadvantage in investigating and subsequently defending a claim in what is typically a very short space of time, as fewer witnesses are available as time passes and insurers are less willing to admit cover. The endurance and high costs associated with asbestos-related claims mean that companies simply cannot afford to ignore their disease liabilities, especially in the current economic climate."