Insurers are too slow to respond to SME losses, leaving them vulnerable to going bust - and the industry has made little progress since the Financial Conduct Authority’s similar finding two years ago, according to one firm.
The claims service given by insurers to SMEs
is lagging behind what the companies expect, a recent survey by MGA and loss recovery specialists Lorega found. At the top of the list of gripes from SMEs were that both interim and final claims amounts were not agreed promptly, which the MGA’s MD said could lead to companies being pushed out of business.
“The worst-case scenario is that you never recover from your loss,” Neill Johnstone, managing director of Lorega, told Insurance Business. “If you’re faced with an incident at your small business, one of the things you need to be able to do is to get back to trading quickly, and in order to enable you to do that you probably need funds.”
Unlike large PLCs, most small businesses do not have access to vast reserves of capital. Many will have very little in the bank and will effectively be trading week-to-week, or even day-to-day, Johnstone explained.
“So in a significant incident – and for some SMEs that could even be £10-20k of impact – they don’t have that amount of money to be able to help them get their businesses back up and running,” he explained. “One of the real key elements of an insurance claim for a small SME is cash quickly, and insurers don’t seem to be very good at being able to enable that for an SME who needs money quickly to do work, to repurchase stock and that type of thing.”
If a business is unable to trade due to a lack of access to funds they are likely to lose custom, which could have long-term effects.
“Most SMEs operate in competitive work places, and if you don’t get back to business quickly, when you finally do you’ll find that all your customers have gone elsewhere. Ultimately you might get your insurance claim paid, but then you might go bust six months, or a year down the track, when you’ve been unable to recover all of your business,” the MD commented.
Six out of 10 businesses surveyed said they’d had no advice on loss mitigation from their insurer, a finding which Johnstone said is puzzling.
“[It’s] quite intriguing really, because it’s in the insurers’ interest to provide loss mitigation because it reduces the impact of the loss financially to them, so there’s a mutual benefit,” he noted. “You want to be there with the customer as soon as possible, and as soon as possible for us means 24 hours. It’s very difficult if you’re an SME owner – most owners don’t have multiple claims, they only have one in their lifetime, and when that happens who do you turn to? You want to be able to turn very quickly to your insurer or some form of expert advice.”
Ultimately, Lorega’s findings show that there has been little progress since a Financial Conduct Authority report in 2015, which warned that there was an overall “poor perception” by SMEs of the claims experience.
“The point of this exercise, is we’re saying to our intermediary customers, to insurance brokers, that the need for our product is as good today as it’s ever been,” Johnstone concluded. “We can’t see that the industry from our survey has improved at all. Our message to the industry is that nothing has changed.”
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