A quarter of SMEs cancelled their business interruption cover last year because it did not provide the cover it thought they did, according to a newly released study.
The survey, carried out by anaytics firm GlobalData in the third quarter of 2020, also found that 23.1% of the SMEs it questioned had had a BI claim rejected by their insurer.
GlobalData insurance analyst Ben Carey-Evans said the ruling was ”great news for the SMEs who had a very stressful year and had extremely stretched budgets”.
But it was likely to hurt the insurers in the short-term.
”As the data shows, SME customers have already been turning away from the insurers because they didn’t believe they would pay out.
”Given that this was in 2020 when nothing had been confirmed, it is likely that many more would have cancelled in 2021 had the supreme court allowed the insurers to deny the payouts for the pandemic.”
While making BI payouts for Covid-19 has been tough for insurers, ”paying out claims and showing that it can offer much needed financial support in times of crisis will show how essential it can be”, Carey-Evans said.
”While paying out much later, and when forced to, may not be a great look, it is far less damaging than had they not.
“It is likely that many businesses will be scarred by what happened in 2020 and will look to make sure they are fully covered for anything preventing them from doing business in the future, and SME insurance penetration rates could start to increase.
”This could be essential for insurers as the number of businesses and employees is likely to drop in 2021 due to the economic impact of the pandemic, so raising penetration rates could counter that,” Carey-Evans concluded.
The UK supreme court has adjudged that the insurers will have to pay small firms for their COVID-19 losses, which will hit the profits in the short-term. Consequently, this decision may save the collapsing reputation and trust of the insurers in the industry in the long-term, says GlobalData, a leading data and analytics company.
The top five business interruption insurance providers for SMEs in 2020 are AXA, Aviva, Zurich, Barclays and Allianz. As Barclays’ SME business cover is underwritten by Allianz, all five of the leading insurers in the UK were included in the FCA’s investigation and will now have to payout claims.