London ‘risks losing insurance business over unsuitable policies’

London will lose out to rival insurance markets if it does not reduce reliance on unsuitable standardised policies sold to businesses, according to a new report from insurance adviser Mactavish.

The problems that caused confusion over Covid-related business interruption claims are a growing feature of other business insurance contracts, meaning “no one really knows what they are covered for”, said Bruce Hepburn, chief executive of Mactavish.

Lloyd’s of London, the City’s insurance market, has been trying to increase the standardisation of contract wordings so that insurers can more accurately measure their exposure to possible payouts.

Mr Hepburn said that the ambiguous wordings in cookie-cutter business interruption policies was being replicated across other types of business cover, including in the growing cyber insurance market.

More than a third of companies surveyed said the cyber cover available to them was unfit for purpose, according to the report.

Lloyd’s of London expects to pay out £5bn on Covid-related claims but hundreds of thousands of small businesses have been left in limbo during the pandemic as insurers resist paying out under policies designed to make good for lost profits.

Mr Hepburn said: “Clients are being let down by policies that are not fit for purpose. In an age of growing complexity, rather than crafting highly-targeted wordings designed to meet clients’ unique requirements, brokers and insurers are increasingly developing one-size-fits-all approaches.”

Customers do not understand the complex insurance policies they are buying and standard contract wordings are not being adapted to meet clients’ individual needs, the report claimed.

“With Covid-19 for example, many companies find they are covered against the unlikely event of bubonic plague but not against new diseases like coronavirus,” Mr Hepburn said.

In one example highlighted in the report, an events business found that its professional indemnity insurance contract excluded cover for all of its advisory work due to broad exclusions included in its policy.

“Flawed policies lead to disputes between insurers and clients, a breakdown in trust, and the further commoditisation of insurance,” Mr Hepburn said. “This negative cycle must be broken or, as rival centres gain ground, the London market will decline.”