Small businesses to face premium pain
THOUSANDS of small businesses could find themselves priced out of vital insurance cover as some premiums have risen by 800 per cent this year, according to consultant Mactavish.
Chief executive Bruce Hepburn warned that as premiums are likely to carry on rising, many small to medium sized enterprises (SMES) will not be able to afford to renew their policies, putting them at risk of having to reduce their operations, make staff redundant or even go into administration.
Insurers have been raising prices as their profitability has been eroded by years of low interest rates and competition. Additionally, they have been trying to minimise claims payments and focus on newer risks, such as coronavirus, working from home and the continued growth in cyber-crime.
The insurance market has been hardening, the term for when cover is harder to find, due to companies pulling out of the market and in the process, pushing up the cost of premiums.
Hepburn 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 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 still being battered by the economic fall-out from the pandemic. For some SMES, these unexpected cost increases could be the final nail in the coffin.”
Hepburn said that while on average commercial insurance premiums increased by 34 per cent this year, areas such as crime, professional indemnity, pension trustees’ liability and directors’ and officers’ cover has seen far higher price rises.
It fears SMES in badly hit sectors such as food and beverage, travel, manufacturing and waste sectors may find it a challenge to renew or obtain new cover at existing levels.
The warning comes as the Supreme Court prepares to issue a landmark judgment on whether insurers such as Hiscox, RSA, QBE, MS Amlin, Argenta and Arch should honour coronavirus claims made by the SME customers on their business interruption policies.
The Supreme Court’s decision could come before Christmas and lawyers for the SMES say that without the insurance payouts, many will be at risk of going under. Around 370,000 businesses will be affected by the decision.
The insurers claim most policy wordings do not cover pandemics.