global insurance management

FCA review finds market failing SMEs on claims

Jun 19 2015

FCA review finds market failing SMEs on claims

Reason for issue:      FCA Thematic review published

Action required:        Consider current communication processes and any training needs.

We doubt that it will come as much of a surprise, to any broker involved in commercial insurance, that the Regulator’s latest thematic review says that SME clients are being failed by the market. Clients are often left underinsured and confused by claims services, according to the FCA.

SME clients were left disappointed by claims service, claims are not managed effectively and poor communication between all parties left customers confused as to who was delivering the service, the FCA study (TR15/6) found.

Inadequate cover

Perhaps the most worrying finding, however, was that in about 21% of claims the sums insured were inadequate to cover the losses suffered by the policyholder. In some of these cases, the amount of cover purchased was below 50% of the actual loss.

It is clear that underinsurance is a huge issue for the industry.

Unable to understand the wording of their policy or properly assess the level of cover required, it seems customers are simply choosing the cheap option. Without the necessary information laid out in simple, digestible terms, they are left to gamble on not getting the cover they need, particularly when it comes to business interruption.

We have seen a number of client complaints recently, arising from claims that were not adequately covered. It does seem that there is a need to ensure that brokers are focusing on this issue in review meetings with clients and helping clients to understand that underinsuring is a false economy.

More difficult is getting the message across to clients that you deal with by post. However, the need to ensure that sums insured are adequate still needs to be made clear to the client (and it is the broker’s responsibility to ensure that the client understands how sums insured should be set).

Claims handling

There also seems to be a lack of transparency with many SMEs apparently unaware of the role each party (Broker, Adjustor and Policyholder) plays in the claims process, or who is driving the claim to a final resolution.

As quoted in Insurance Times, Loss adjustor QuestGates’ managing director Chris Hall says this could be because different links in the claims supply chain refuse to take ownership of their respective role in the process.

“The danger is that a customer phones the broker, he’s told he needs to speak to the insurer, the insurer in turn says he needs to speak to the adjustor, and so on. It sometimes isn’t clear to the customer where the claim is, and who is doing what.”

As the review found, most parties in the process fail to communicate efficiently, and consequent delays to the goal of restoring the SME to working order are inevitable, unless significant changes are made.

So what to do next?

We think brokers need to consider their communication process with clients at inception, renewal and during claims negotiations.

The first thing to remember is that it is your responsibility, as the client’s broker, to ensure that you make clear the basis upon which the client should be insuring. You also need to make clear to the client the consequences of under insurance.

Equally, if the client refuses to review their sums insured, when you believe they are inadequate, you must make sure that you protect your position by writing to them to confirm your view that sums insured need to be reviewed (and rebuilding valuations completed if appropriate).

We suspect that the issue of setting Business Interruption sums insured and Indemnity periods is still a bit of a mysterious art as far as some broking staff are concerned. If you feel you need to complete training or research, on this issue, please do so as you cannot expect the client to get it right unless you are confident in your own knowledge.  

It should also be borne in mind that, during a period when rates are flatlining, at best, there is an opportunity not only to ensure that he client is properly covered but to generate additional revenue.

As far as claims and communication issues are concerned, you, as the client’s broker, need to be clear in your own mind, and in communication with the client, about who does what and when. The client should not be shunted around during the claims process and you need to be willing to step in and take control of a situation if it starts to drift.

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