Standardised insurance pitfalls

To many, the crisis is the sort of event that insurance was designed to help with. The reality has been somewhat different.

While a lucky few policyholders have had Covid-19-related business interruption claims settled, the value of payouts is relatively small; and even where companies did seemingly have cover for pandemic events, many have seen their insurers use every possible argument to avoid settlements.

Perhaps more surprisingly, some policyholders have found they have cover for bubonic plague, but not new diseases with the potential to spread rapidly and cause widespread economic destruction. How have organisations come to have such wildly unsuitable insurance without being aware of its limitations?

The answer is that insurers and brokers have spent years sidelining the technical skills that used to be the industry’s crown jewels. Instead of investing in skilled underwriters and risk analysts, they have placed a greater emphasis on sales and marketing. This has led to increasing use of standardised, one-size-fits-all policies.

Policy standardisation is not necessarily bad. It could, for example, lead to the spread of best practice and simpler, more comprehensible policies. However, the reality is the dearth of technical expertise also means that brokers are not often able to adapt standardised policies for the specific requirements of each client – and in many cases, are unwilling to do so. This is not helped by the fact that the policies themselves are often extremely opaque.

Sadly, we routinely see clients in the property sector dealing with insurance uncertainty, such as gaps in coverage between different policies, confusion over which types of damage and risks are covered and how to properly notify claims or disclose tenant activities without invalidating cover.

Bruce Hepburn is chief executive of Mactavish