Briefing: Small comfort for insurance industry from FSB report

By Jon Guy

The UK insurance industry has faced more criticism this week, with member organisation the Federation of Small Businesses (FSB) warning that there are many firms which are now in a position where the cost of their insurance cover is threatening their survival.

The organisation’s latest member survey, which polled 819 small businesses in January 2022, found that respondents’ costs are rising – many said that when renewing their insurance, they were paying more for less because coverage was restricted.

The survey’s associated report – Paying a premium? Reforming the insurance market to work for small firms, published in July 2022 – noted “concerns about whether the insurance market is performing adequately for small firms and self-employed people”.

“With high inflation putting general pressure on small firms’ bottom lines, the report’s finding that a clear majority (60%) have seen their insurance premiums rise in the last year is an illustration of the cost squeeze facing small businesses, [which] cannot in most cases operate without various forms of cover,” the FSB added.

The Covid-19 pandemic and related business interruption coverage disputes are still impacting many small businesses, but the question for the insurance market is whether it is standing up for its customers. Clearly insurers and brokers are not charities - they need to deliver results for their businesses and shareholders.

However, the FSB wants the regulator to effectively step in if it believes that the industry’s stance is bordering on profiteering.

As part of its list of “recommendations”, the FSB said: “The Financial Conduct Authority should be explicitly required to consider intervening in a market if it becomes clear that there is a segment [or] sector of businesses that are unable to obtain insurance.”

The biggest criticism of the insurance sector came from FSB national chair Martin McTague, who said: “Long, complex contracts present difficulties to smaller businesses without a whole department dedicated to deciphering legalese. [This] runs the risk of small business customers believing they have purchased adequate policies when, in fact, they have not.”

You have to wonder what brokers think when they see such statements, given their explicit role to advise clients? On the other hand, is this a damning indictment of the use of aggregators to access commoditised commercial covers?