Cost concern

Small firms call for reform of insurance market

Martin McTague, FSB chairman
Martin McTague: firms can be painfully exposed

Small firms are calling for a reform of the insurance market as many say they cannot afford soaring premiums.

The Federation of Small Businesses says there is growing concern that the insurance industry is not working for SMEs and the self-employed.

A new publication, Paying a premium? Reforming the insurance market to work for small firms, looks into the price of insurance and whether the products on offer are suitable for small business customers.

Almost two-thirds of firms (60%) have seen their insurance premiums rise in the last year and many cannot operate without various forms of cover.

Over half (52%) of those whose premium costs have risen say that the rise is 11% or greater, while some individual businesses have seen cost rises far in excess of that – particularly following a claim.

The pandemic brought many underlying problems with insurance into sharp relief, as small firms had to fight hard for their business interruption insurance to be honoured, leading to significant uncertainty and worry at a time when they were already fighting to survive.

Other types of insurance, particularly professional indemnity insurance (PII) – which is often a trading requirement for firms in areas such as accounting or architecture, among others – have seen their markets harden, restricting access to cover and the protection afforded to customers in the wake of COVID-19

FSB national chair Martin McTague said: “Rising cover prices leave firms caught between a rock and a hard place, forced to pass on higher costs to customers, or to cut back on investment and expansion – or even to risk opting for a lower level of cover, which may leave them painfully exposed if the worst should happen.”

The report includes numerous recommendations for regulators, insurers, and the Government on how to resolve or improve many of the difficulties small firms face around insurance, including:

  • The Government should work together with insurers and the Financial Conduct Authority (FCA) as the regulator to agree specific conditions for forms of Government support that should not be taken into account when calculating business interruption insurance claims.
  • The Financial Conduct Authority should be explicitly required to consider intervening in a market if it becomes clear that there is a segment/sector of businesses that are unable to obtain insurance.
  • The Government should convene discussion with relevant sector-specific regulators and professional associations, to ensure that PII requirements that are imposed as a condition of being able to practise are assessed so they do not disadvantage small businesses. The FCA should carry out a market study of PII, given recent price increases and market hardening.
  • The Government should use the Procurement Bill to remove barriers for SMEs in accessing public procurement opportunities. This should include commitments not to impose unlimited liability for public contracts, to share risk reasonably, and to ensure that both PII and public liability insurance requirements in public contracts are proportionate to the size of the contract.


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