In the aftermath of Covid-19 the pressure will inevitably be on for many businesses and homeowners to make cost savings. It follows that the demand on brokers and intermediaries to assist clients in achieving some of those economies will increase, as will the competition for that business.
In a market dominated by off-the-shelf insurance solutions and non-advised sales, there can often be very little scope for adjusting the basic types of cover on offer in order to achieve savings on premiums. Many elements of the insurance offering are non-negotiable aspects like PL/EL/PI covers with set cover limits, so it’s probably not surprising to see the focus turning towards the levels of cover selected for those elements, which do have variable sums-insureds and that directly feed into premium calculations, being fine-tuned to achieve the desired savings. Unfortunately, clients do not always listen to expert advice about correctly assessing the adequacy of sums insured or take on board the message about the practical impact of underinsurance.
For those of us predominantly working at the back end of the insurance industry and particularly those dealing with major loss claims, instances of underinsurance are an ever-increasing feature. Underinsurance penalties can often completely undermine the performance of even the best insurance product and leave businesses and individuals, who despite having valid claims, without the levels of adequate protection and ultimately feeling like the policy provided an empty promise. In cases of gross underinsurance, it can lead to policy voidance but even where it is more marginal it can completely prevent a business or a homeowner being able to reinstate and carry on.
In cases like these, you could put your warning in writing and suggest a follow up discussion, but will that conversation ever happen? Is it easier to tackle this at the outset?
In the aftermath of a major event, if ever a claimant was asked to retrospectively swap the correct adjusted premium for the necessary levels of cover to allow a claim to be paid in full rather than it being adjusted to reflect underinsurance penalties, clearly there would never be any objection and yet all too often a few additional pounds at inception or renewal are being traded for what could be huge percentage reductions to a claim settlement and the difference between financial survival or financial intensive care. Not only does it expose the client themselves to unnecessary risk, but it also prejudices the client / broker relationship and the security of future sales.
In the face of an underinsurance pandemic, insurance policies will always provide the overall mask of protection, but the true vaccine is good advice and brokers are the syringe that needs to deliver that.
Morgan Clark are Associate Members of BIBA. More information can be found at www.morganclark.co.uk
Phil Morgan, Chairman of Morgan Clark