Are you a risk manager?
As someone who works with business owners every day, I have huge respect for those who build successful businesses from scratch.
Growing a business takes courage. Every major decision involves balancing opportunity against risk. Hiring that extra employee, taking on larger contracts, investing in new premises, expanding into new markets. None of it comes with guarantees.
In many ways, successful business owners become very good risk managers. They constantly weigh up possible outcomes and make informed decisions about the future.
Which brings me to insurance.
The Risk You Can't Completely Control
Insurance exists to protect businesses from risks they cannot entirely eliminate.
A member of staff makes a mistake.
Equipment is stolen.
A building is damaged.
A cyber incident disrupts operations.
No matter how well-run a business is, some risks remain.
The principle is simple: transfer the financial consequences of those risks to an insurer.
Unfortunately, the reality is often far more complicated.
Many SMEs see insurance as a necessary purchase, obtain cover, file the documents away and move on to running their business. That's understandable. Most business owners didn't start their company because they were interested in insurance law.
However, when a claim occurs, that's often when they discover that insurance is far more nuanced than they realised.
The Importance of the Insurance Act 2015
One of the biggest changes to commercial insurance in recent years was the Insurance Act 2015, which came into force in 2016.
Before this, insurers had very broad rights under legislation dating back to 1906.
In some circumstances, if information provided when arranging insurance was inaccurate or incomplete, insurers could avoid the policy entirely. Even innocent mistakes could have severe consequences.
The Insurance Act introduced a more balanced approach.
Rather than immediately declining a claim, insurers can now consider what they would have done had they known the correct information at the outset.
Questions might include:
- Would they still have offered cover?
- Would they have applied different terms?
- Would they have charged a higher premium?
- How would those changes have affected the claim outcome?
For policyholders, this was a significant step forward.
At least in principle.
The Reality: Not All Claims Experiences Are Equal
While the Insurance Act provides a clear legal framework, insurers may approach the investigation and resolution of claims differently.
Underwriting philosophies, attitudes towards customer outcomes and interpretation of available evidence can all influence how a claim progresses.
For example, imagine a business accidentally understates its turnover when arranging cover.
An insurer may conclude that they would still have insured the business, but would have charged a higher premium. In that situation, the claim may still be paid but reduced proportionately to reflect the premium that should have been charged.
Another insurer may determine that they would not have accepted the risk on the same basis at all, potentially leading to a very different outcome.
The legislation itself is the same. However, the way insurers assess the circumstances surrounding a claim, gather evidence and apply the available remedies can vary significantly.
This is one of the biggest misconceptions in the SME market. Many businesses assume insurance is a commodity and that one policy is broadly the same as another.
In reality, policy wordings differ.
Claims philosophies differ.
Decision-making processes differ.
And those differences often only become visible when a claim is made.
What Good Brokers Look At
When brokers assess insurers, we're not just looking at price.
Of course, premium matters. Every business wants value for money.
However, we also consider factors such as policy coverage, insurer financial strength, claims reputation and how insurers support customers when things go wrong.
Do they look for practical solutions?
Do they communicate clearly and fairly?
Do they work constructively with policyholders and brokers to achieve positive outcomes?
Or do they take a more rigid approach?
At Sense Risk, assessing insurer performance forms part of our Consumer Duty obligations, helping us demonstrate that clients receive fair value and good customer outcomes, rather than simply the lowest premium.
The reality is that insurers with strong reputations for claims handling are not always the cheapest option.
There's often a reason for that.
The Question More Businesses Should Ask
When obtaining insurance, most businesses naturally ask:
"How much does it cost?"
Far fewer ask:
"What are they like when I need to make a claim?"
Personally, I believe that's the more important question.
If a policy's true value is only tested when a claim occurs, shouldn't claims performance form part of the buying decision?
What factors influence your insurance purchasing decisions?
Price, cover, claims reputation, insurer financial strength, or something else?
And perhaps the more important question:
When was the last time you asked your broker how an insurer is likely to respond when you actually need to make a claim?
