UK's FCA urged to undertake study of hard PI market

The UK financial services regulator should carry out a market study of professional indemnity (PI) insurance after recent price increases and market hardening, the UK’s National Federation of Self Employed & Small Businesses (FSB) says.

The Financial Conduct Authority (FCA) should work with the UK Government and insurers to remove barriers for SMEs, the “Paying a premium? Reforming the insurance market to work for small firms” report says, after 60% of UK SMEs saw insurance premiums rise in the last year.

Half said the rise was 11% or greater, while some businesses experienced much higher cost rises, particularly following a claim.

“Our recommendations will help to make insurance easier and more cost-effective for small businesses to access, allowing them to be sure that by paying for a premium they are getting a premium product in return, one suited to their business’s particular needs,” FSB National Chair Martin McTague said.

The FCA should be explicitly required to consider intervention if a segment or sector of businesses are unable to obtain insurance, the FSB says.

It also wants PI insurance requirements for public contracts to be “proportionate to the size of the contract,” and says government support should be taken into account when insurers calculate business interruption insurance claims.

“Cover for risks of all kinds – from fire to flood to less tangible dangers – is vital to small businesses’ continued ability to trade, but our report indicates that there are problems lurking under the surface which, if left unaddressed, could further hamper small firms’ ability to compete on an equal footing,” Mr McTague said.

Long, complex contracts present difficulties to smaller businesses without “a whole department dedicated to deciphering legalese”, he says, and runs the risk of small business customers believing they have purchased adequate policies when “in fact they have not”.

He says procurement processes which mandate high levels of insurance for relatively small contracts put them out of the reach of small businesses.