The issue of ‘under-insurance’ was the key behind BIBA’s launch of their Professional Indemnity Initiative earlier this summer. Releasing the sixth in their series of indemnity guides, the association called for a standardised 24 month indemnity period across the board; while calling for the abolishment of 12 and 18 month periods.
The call for change has come about following the FCA’s thematic review into commercial claims which focused on a worrisome level of underinsurance among small and medium sized enterprises (SMEs) across the UK.
Business Interruption Claims
BIBA Chief Executive Steve White, in a statement on the association’s website, said that BIBA saw the issue of underinsurance as one of the key issues of the year, adding that the association would:
“Continue to do all that we can to help members and their clients manage it.”
The FCA review revealed that on business interruption claims from SMEs in the UK, almost a quarter had losses which exceeded the indemnity period of 12 months. Effectively rendering the policy inadequate for purpose. Which, as the review highlighted, resulted in a situation where SMEs’ were, in too many instances, not having their expectations met by their insurance provider.
How the move to 24 months will help
Standardising the period to 24 months is a move aimed at rectifying the situation.
As Mr White added:
“Many of our members and insurer partners have told me that the difficulty in obtaining planning consents and in some urban areas the scarcity of labour and materials is drawing out the time needed to reinstate property and get businesses back on their feet. That is why…I will be calling on the industry to adopt a minimum of 24 months indemnity period for most business insurance policies.”
Naturally this will be seen as a benefit to the peace of mind of business owners in the long run. But it also serves to aid BIBA member insurers and brokers. With a longer standardised indemnity period it will allow them to deliver greater guidance on the correct level of cover each client will need; especially in regard to the always critical business interruption cover.
Consequences of Not Following the Guidelines
Underinsurance is a huge concern to client, insurer and broker alike. For a business, the impact is somewhat obvious. A major and unforeseen business interruption can be devastating to the company. Should these losses NOT be covered by the indemnity period, then the ramifications could be fatal – with losses from which you may never recover.
For the broker this is a situation that can be equally devastating. Delivering insurance cover that falls short of the client’s potential needs is to risk your reputation and potential future business. Not only will it seriously undermine the trust in the level of protection you’re providing it has the potential knock on effect of harming business owner’s overall faith in the insurance industry as a whole.
And the insurance sector cannot afford a loss of faith from its valued customer base.
There’s a BIBA Guide about preventing under-insurance, co-authored by Roger Flaxman of Flaxman Insurance Claims Advocates. The guide outlines the brokers’ duties in relation to delivering the adequate cover to clients and how underinsurance can seriously affect their Professional Indemnity risk
Make the change for FREE
In the continued spirit of supporting brokers and the industry at large in delivering the best, most appropriate products with the highest standards of service, SchemeServe are on board with the changes in indemnity periods from BIBA.
With this in mind, we’ve made it simple for our clients to make any necessary changes to their terms in order to comply with the new guidelines.
The change can be made online as part of your FREE SchemeServe support allowance.
If you need any assistance in making the change, all you need to do is head on over to Zendesk on the site and raise a ticket. We’ll be happy to help you make the changes you need.