The COVID-19 pandemic is expected to cost the insurance industry considerably through claims, but the court ruling of the Financial Conduct Authority’s (FCA) business interruption test case has the potential to worsen the impact by damaging the trust that policyholders have in their providers.
Findings from GlobalData’s 2020 UK SME Insurance Survey indicate that across all SME sizes, more than one in 10 have cancelled their business interruption cover (13.2% of micro, 12.7% of small, and 13.9% of medium) as a result of COVID-19. The leading reason for cancelling their policy was that it did not provide the level of cover they thought it did, with 26.3% of SMEs identifying this reason. Clearly, the exclusion of COVID-19 from many policy terms has played a role in them feeling this way.
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The lockdown measures brought into force as a result of the COVID-19 pandemic meant a number of businesses were forced to close. Many thought that their business interruption policy would protect them due to policy wordings including ‘notifiable diseases,’ but this evidently has not been the case. Over one in five SMEs cited that the reason for cancelling their business interruption policy was that they had a coronavirus-related claim rejected by their provider.
It is clear that the level of trust policyholders hold for their insurer has been damaged. Chartered Insurance Institute research shows that 39% of its members think the FCA case has somewhat reduced the faith that consumers have in policies paying out when needed.
If the industry fails to address the negative impact this case has had on trust, we should expect to see an increased rate of both cancellation and switching at the point of renewal as policyholders look to sever ties with their current provider.
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By GlobalData
