Don’t be soft with your insurance

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We caught up with Paul Davison (pictured), commercial director at Erimus Insurance Brokers, to discuss the current state of play in the insurance market…

Has the pandemic affected the insurance market?

Covid-19 has had a significant impact on the insurance market, both financially and reputationally. It is set to be the largest event to ever hit the insurance world, with reserves of £200bn globally.

We also saw the Supreme Court hearing for the FCA business interruption test case – this was a significant ruling and found in favour of the policyholders. However, we must stress that it is still only a very small number of policies that have the specific wording required to make a valid business interruption claim.

Have there been any other changes to the insurance market?

The insurance market is cyclical, moving between “soft” and “hard” markets. For the past 15 years we have been in a soft market, which has meant lower premiums and plenty of capacity within the market.

In 2018 the market began to harden, with certain classes of business, such as professional indemnity, being the first to fall to the tough market conditions. Covid-19 and the economic pressures that have come with it are the perfect storm for a hard market.

What does it mean for policyholders?

Businesses are likely to find increases across their insurance portfolio, some as high as 50 per cent or more. In addition to the higher premiums, there is also a reduction in capacity, meaning cover is not as readily available. This can leave businesses with significant uninsured risk exposures.

Unfortunately, soft markets breed poor habits. When cover is abundant and premiums are low, there is less emphasis on technical competence. A hard market will test a broker’s expertise – it is vital for clients to have the right insurance broker on their side.

With more than 35 years of experience in the insurance market and a collective total of more than 300 years of experience within our account executive team, we understand the demands of a hard market and how we can ensure our clients are protected and secure.

What can businesses do?

As insurance premiums rise it can be tempting to look for the cheapest price available. However, we would strongly advise against this unless the broker can demonstrate that the policy is fit for purpose and you are satisfied that you comply with your duty of fair presentation.

When you buy an insurance policy it is more than a piece of paper, it is a promise to pay claims and protect your business.

As with any contract, certain clauses and wordings can be the difference between a claim being paid, or not.

Poor brokers sell on price alone, and this should be a red flag for clients. A good broker should be able to explain the significant policy cover and, more importantly, the significant exclusions terms and potentially onerous conditions.

You need to be confident that your insurance broker has arranged a robust insurance programme, and we would always advise engaging with a reputable insurance brokerage in your area.

A good broker should be able to demonstrate their industry experience and capabilities and you should always carry out your own due diligence by reviewing the following:

• Professional qualifications and industry experience of the individual
• Industry employment history – a regular change of employer being a red flag
• Personal experience in arranging insurance programmes in the same sector
• A quality information fact find, which your broker will need to obtain from you to make a fair presentation to the market on your behalf
• A professional broker will always provide you with written contract terms that detail the cover, terms and conditions upon which the insurer is prepared to enter into a contract with you