Insurance claims services not meeting SME's expectations, finds FCA review

The FCA said its review of the SME insurance claims market (22-page / 211KB PDF) revealed SMEs have "an overall poor perception" of "the claims experience". Some SMEs that have been through the insurance claims process felt "they had not been treated fairly", according to the regulator's report.

Linda Woodall, acting director of supervision at the FCA, said: "In an area where any delay could have a serious impact on a business or someone's livelihood, it is vital that claims are taken seriously and processed promptly - that means putting customers at the very heart of the process. We expect all firms to carefully analyse the findings of the review and make any necessary changes to their approach to ensure that SME claimants are treated fairly."

Faults identified with the claims process included a lack of clarity over who was responsible for delivering claims outcomes, and poor communication between the different businesses involved in handling claims and with the SMEs themselves.

The FCA said it also identified a "significant number" of claims cases where it had transpired that SMEs had been insured for sums that were "inadequate to cover the loss incurred". In some cases, the sums insured for covered less than 50% of the losses sustained by SMEs, it said.

"In most cases sums insured should be sufficient to cover both physical assets – buildings, contents, stock etc. - and business interruption (BI)," the FCA said. "If sums insured are inadequate (i.e. the SME is under insured) this can result in a misalignment of the expectations of the performance of the policy at the point of claim."

"For both advised and non-advised sales FCA rules require insurance intermediaries to specify the demands and needs of the customer. For advised sales the firm must take reasonable care to ensure the suitability of its advice for any customer who is entitled to rely on its judgement. Insurance intermediaries may also have other, common law, duties. We also expect firms to provide customers with appropriate information in a comprehensible form about the policy so that the customer can make an informed decision," it said.

The FCA said that the British Insurance Brokers Association is expected to issue "technical guidance for its members about how to ensure customers do not have inadequate sums insured" in the near future.

In its review, the FCA had looked at the claims experiences of 100 SMEs and assessed how 25 businesses in the SME insurance claims market, including insurers, insurance intermediaries and loss assessing companies, handled those cases. The review concerned first party non-motor claims only, such as claims stemming from fire, flood, escape of water, theft and business interruption.

The review found that SMEs had to chase their insurer for an update on the progress of their claim in "the majority of cases". It said delays, such as in the time it took loss adjusters to visit premises to assess the loss SMEs had suffered, "left SMEs unclear about what action they should take in the interim", such as whether they could dispose of items damaged by fire or water or put in place "business continuity arrangements to minimise disruption".

"This report on the FCA’s thematic review into handling of insurance claims for SMEs contains familiar themes about the importance to the regulator of firms putting customers at the heart of their businesses," said insurance expert Alexis Roberts of Pinsent Masons, the law firm behind Out-Law.com. "This theme has been repeated across a number of areas of scrutiny by the FCA."

"Apart from that, the chief elements of feedback are around first the mis-match between claims handling performance and the customer’s expectations, and second some respects in which the FCA considers that claims are not currently being handled in an effective manner to achieve a swift and fair outcome for customers.  Firms are asked to look carefully at their processes and act accordingly. While this is a serious finding, one positive is that the FCA specifically says that it found no evidence of firms seeking to unduly delay the admission of liability," he said.

Roberts said it is also significant that the FCA did not refer to issues relevant to broker conflicts of interests in its latest review despite indicating in its thematic review on broker conflicts of interests that it would revisit those issues as part of this latest review. He said this suggests the FCA "found no significant evidence that conflicts were not being managed effectively to avoid poor results for customers at the claims stage" This is a "big positive for the sector", Roberts said.