2020 has been a turbulent year for business owners, especially those who have had business insurance claims turned down because their business interruption policies didn’t cover them for the pandemic.
And it looks like 2021 will be just as turbulent, as the pandemic could lead to policy price hikes of as much as 800%.
Business owners face insurance premium price hikes
Mactavish, the specialist outsourced insurance buyer and claims resolution expert, says many commercial policyholders have faced drastic premium increases this year as insurers look to improve margins in a hardening market, sometimes of up to 800%.
This is coming in addition to a greater focus on newer risks such as the increase in cyber crime that has been spurred by the pandemic and the rise of remote working.
As insurers also look to protect their reserves and minimise claims payments, Mactavish says it has also seen considerable erosion in the quality and extent of the insurance cover offered to policyholders.
This is often buried in T&Cs without being flagged by either insurers or brokers, meaning that policyholders may not be aware of their increased exposure.
Business insurance premiums up by a third
Market surveys are showing 34% increases in premiums across the board, but this masks a much more complex picture. Lines such as Crime, Professional Indemnity, Pension Trustees’ Liability and Directors’ and Officers’ insurance have risen far in excess of this.
In addition, some industries have suffered much more than others. Firms in the construction, energy, food and beverage, travel, manufacturing and waste sectors will be experiencing particularly challenging renewals.
Mactavish warns that it expects rates to continue to rise in 2021 and says that some companies will be unable to pay for their cover, meaning they will be forced to reduce operations, lay-off employees or even go into administration.
Mactavish is one of the largest independent ‘buyers’ of commercial insurance in the UK, and this year it has helped clients cut the cost of their insurance premiums by 50% in some cases by using a unique approach that runs brokers in head-to-head competition along with their preferred insurance partners.
In addition, while cost is an important area of focus, Mactavish has also improved the quality of its clients’ cover by negotiating critical changes to policy wordings.
Bruce Hepburn, CEO, Mactavish said: “For years, the insurance industry has sold its cover on the basis of price as opposed to quality and this has pushed premiums down, when in many cases they should have been higher.
“The insurance market is hardening now, and premiums are rising dramatically as insurers seek to make up lost ground quickly. The timing couldn’t be worse for firms that are still being battered by the economic fall-out from the pandemic. For some businesses, these unexpected cost increases could be the final nail in the coffin.”
“Aside from playing a role in pushing price increases, COVID-19 has also exacerbated many risk areas. As just one example, there has been a marked increase in cyber crime as employees moved to home-based working. This creates a double whammy effect where policyholders need to buy more insurance at precisely the moment that prices are spiking.”
Hepburn added: “While brokers naturally prefer exclusive relationships, our work shows that you get a much better outcome when there is real competitive pressure between competing suppliers. Since many brokers receive premium-linked commissions from insurers, policyholders should be wary of taking cost increases at face value.”
Mactavish cited a recent engagement in which a financial services firm had been badly let down by its broker. Even on the day its insurance was set to renew, the incumbent was unable to confirm that it had secured 100% of the capacity the firm required. Worse, a number of exclusions had crept into the policy wordings that had removed vast swathes of essential cover. Working at speed, Mactavish was able to put in place all of the required capacity, get rid of the onerous exclusions and achieve a double-digit cost saving.
Mactavish specialises in helping employers enhance their chances of securing reliable insurance policies at competitive prices, and resolving claims disputes.
