A Financial Conduct Authority (FCA) Thematic Review on the handling of insurance claims for SMEs has found a significant number of cases where the sums insured were inadequate to cover the actual loss incurred.
The review was based on non-motor claims between £5,000 and £100,000, for various insured events – fire, theft, flood, water escape and business interruption. The FCA study concluded that for 22 % of the SME claims analysed, the sums insured proved to be inadequate. In some cases the sums insured were less than 50% of the actual loss. For an SME, under-insuring will normally result in any claim settlement being reduced in proportion to the degree of under-insurance.
An independent research report, commissioned by the FCA to support their review, has also identified many examples where SME insurance claims were not paid in full due to policy terms and conditions, warranties or exclusions. In a number of these cases, the customer believed that they were adequately covered, and only realised after making a claim that their policy was not as comprehensive as they thought. Some customers received no settlement payment as claims were repudiated, mainly due to policy violations, for example, keys being kept on premises or lack of bars on windows.
The financial impact on an SME of having a claim reduced due to policy interpretation can also be severe. Commenting on the impact of these findings on lessors in Asset Finance International, Nick Leader, Director of Acquis Insurance Management, said: “The under-insurance and various policy issues raised by the FCA have clear risk implications for lessors who are financing assets to SMEs.“It’s normally a contractual requirement for an SME customer to have full, comprehensive insurance cover for any financed assets and if an SME who is already under-insured then adds financed equipment to be covered by the same policy, the degree of under-insurance is compounded – placing the lessor at greater risk.”