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This year’s BIBA Manifesto committed us to do all we can to support members and their customers through these difficult economic times, including searching for appropriate solutions as well as producing guidance for our members. Our guide on Managing the Cost-of-Living Crisis is now available and aims to help brokers explain to customers why insurance premiums have increased and what they can do to contain these costs while maintaining adequate insurance protection. It also covers how they can potentially contain or reduce their insurance spend without sacrificing cover and demonstrates the value of using an insurance broker.
I am pleased that this guide, created under the auspices of our Insurance Brokers’ Standards Committee, was recently launched at The BIBA Conference and on the same day we had two former Chancellors (Osborne and Hammond) on stage with a former Economic Secretary to the Treasury (Ed Balls) discussing the significant challenges in our economy. Inflation remains one of their, and our, main concerns because of the affect it has on our sector. We can but hope the OBR prediction of 2.9% inflation by the end of next year becomes true, although I think it may be a stretch.
At a time of high inflation, people and businesses are all looking at ways to reduce or contain expenditure. Insurance is no exception, and the perfect underinsurance storm is created as insurance premiums in general have been increasing due in part to increasing claims costs. There is also greater potential for non-disclosure and fraudulent claims.
In the autumn of 2022, premium finance provider Premium Credit issued the results of a survey which looked at the impact of the recent uncertain economic period on insurance buying behaviours of SMEs. The headline statistic was that 51% of businesses have stopped buying at least one insurance cover in the past year.
Pre-pandemic, the level of underinsurance was dropping and less than 20% of claims exhibited the problem. By early 2021 the level had risen to 40% and this was before inflation had really taken hold. A current estimate would be closer to 50%. New statistics from the Chartered Institute of Loss Adjusters reported in our 2023 Manifesto estimate that, in 2022, 48% of business interruption insurance policies were underinsured.
Prevention is better than cure and brokers can help to demonstrate to the insurer that their customer is a well-run business. Insurers are more likely to charge competitive premiums for businesses that are well run and where employees are well looked after in terms of their health, wellbeing and safety. It is important that your customer can evidence this through their own risk assessments, quality control procedures, financial accounts that are filed on time and unqualified audits, accreditations, and the training and ongoing development of directors and employees. Consider if any impacts of the pandemic on recent results can be stripped out to better present ‘normal’ trading performance to an insurer and to what extent a poorer credit score is directly attributable to the pandemic?
Recognising that many SMEs may not understand all the covers they need, we issued guides on both business insurance and employee protection. As well as showing what good insurance looks like, these guides highlight why using a broker is an important strategy to obtain suitable cover at competitive terms.
There is much a broker can do to help their personal lines customer too. Perhaps advising a household customer on improving security, reviewing their excess, and even insuring their excess, also bearing in mind ‘escape of water’ is the biggest single source of household claims both in terms of frequency and quantum. One provider of leak detection devices puts the annual cost at £15 billion across the UK and US combined and contends that leak detection devices can reduce this cost by up to 70%. It is worth checking with insurers whether they recognise such devices and what discounts are available if a customer qualifies for such a device. And don’t forget that Flood Re now offers £10,000 to make a home more resilient following a flood claim. This money could be used to install flood doors, for tile floors or for repositioning electrical sockets higher off the ground.
I could go on and I know I am preaching to the converted– so it’s much better that you read the guide! I hope it can help you to help your client navigate these difficult economic times.
Read more in our Managing the Cost-of-Living Crisis guide here.
