Rising insurance costs could be ‘last straw’ for struggling small businesses

Half of small and mid-sized UK businesses have seen increases in pandemic-related exclusions in their cover, according to broker Marsh, as insurers try to stop their £1bn bill from mounting further, and businesses struggle to keep themselves covered.

A quarter of the 1,300 small and medium sized companies surveyed by the insurance broker said they had been forced to shut their business, either temporarily or permanently, because of the pandemic and government guidelines.

But the report, published this week, also found that 49 per cent of the respondents discovered new pandemic exclusions in their insurance policies.

Small businesses have been struggling with the rising cost of insurance cover for some time already, Martin McTague, vice-chair of the Federation of Small Businesses (FSB), told City A.M. Professional indemnity insurance was a particular pain point for small companies, according to McTague.

“With 2020 having seen the loss of around 400,000 small businesses,” he warned, “having to pay more for essential cover may well be the last straw for many firms who are already beset on all sides by rising costs.”

“It’s not like [businesses] can choose not to take out insurance, especially where it is a condition of doing business,” he added.

The findings by Marsh come amid reports of businesses taking legal action over pandemic insurance cover disputes.

Corbin & King, which owns London’s Wolseley restaurant, will go head to head with the UK arm of Axa in January after the French insurer blocked the hospitality groups’ business interruption insurance claim. The trial could have wider ramifications for other UK businesses with similar policies. 

The risk report by Marsh, which surveyed how the pandemic impacted businesses’ approach to risk over the last 18 months, also found that 42 per cent were struggling to find the right insurance as a result of increasing pandemic-specific exclusions.

“The crux of business resilience is knowing that you will be tested again, and ensuring you are prepared for all eventualities,” warned Anthony Gruppo, chief executive of Marsh Commercial.

In August the amount insurers paid out in claims to businesses that were forced shut during nationwide lockdowns hit £1bn according to the Financial Conduct Authority (FCA). 

The payouts followed a Supreme Court ruling in favour of policyholders in a test case on cover for business interruption which found that insurers were liable in most cases, especially when a policy offered cover for closure as a result of an outbreak of infectious disease – but it did not cover every type of insurance policy wording leading to a host of legal claims being made since.

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