FCA’s thematic review into handling of insurance claims for small and medium-sized enterprises


Click here to see the outcome of the review.

The investigation focused on SMEs as the FCA considered them to be less sophisticated customers than large corporates, often exhibiting a similar level of knowledge and experience of insurance to that of retail customers, whilst making up a significant proportion of the UK economy and therefore vital to its health.

The regulator reviewed information from 5 insurers, 10 insurance intermediaries and 10 loss assessing firms, and surveyed a sample of 100 SMEs. Interviews were conducted with senior management and individuals responsible for handling and reviewing claims. The FCA also met with loss adjusters and third-party administrators who had delegated authority for handling claims. Additionally, an independent research agency was engaged to carry out qualitative research with 100 SMEs that had made a claim, and of these a loss adjuster looked into 20 claims in detail. The review focused on claims for sums greater than £5,000.

FCA identified the following particular concerns:

1. Overall poor perception by SMEs of the claims experience

  • ­Many SMEs stated that they felt they had not been treated fairly during the claims handling process, which was in contrast to the results of the recent retail claims review.
  • ­There was found to be a significant gap between the customers’ expectations and the claims service received.
  • ­The handling of some of the more complex claims reviewed had resulted in financial and emotional stress for the customer.
  • ­The considerable time commitment required by customers to pursue claims had sometimes caused damage to the business and/or to the individuals responsible.

2. Lack of clarity and poor communication

  • ­SMEs were particularly dissatisfied about a lack of clarity as to who was responsible for driving the outcome of the claim. Claims were not always being effectively managed in the interests of the customer.
  • ­Poor communication between different parties handling the claim and the claimant exacerbated this problem and led to delays in reaching settlement.
  • ­Undue delays in making contact with the customer and site visits to make an initial assessment of loss following first notification by the claimant, led to a much slower overall settlement of the claim.
  • ­Customers were often unclear about the roles of different parties involved in the claims process and how to access their services, particularly the loss adjusters.
  • ­Customers were not given a clear plan highlighting the key stages of the claims process and timescales involved e.g. what action should be taken in the interim after a loss assessment.

3. Sums insured not adequate to cover loss

  • ­FCA identified this as an issue. The underlying reason for this was not always apparent from the review but customer feedback highlighted its obvious impact.

The FCA specifically remarked, as part of its findings, that it did not find evidence of firms unduly seeking to delay admission of liability.

Next steps

The FCA recognised that its review was not taking place in a vacuum and should be considered alongside some significant changes due to take place; in particular that the recast Insurance Mediation Directive continued to be negotiated and that the Insurance Act 2015 would come into force in August 2016. The Mediation Directive could protect SMEs by introducing additional measures for product governance and oversight while the Insurance Act will, among other things, abolish basis of contract clauses, limit the obligations of disclosure and require a causative link between breaches of condition actionable by insurers and the particular loss being claimed.

The FCA will provide feedback to the firms included in the review. It expects all other firms involved in the insurance of SMEs to reflect on the findings of its review and to consider what changes are needed to their businesses to ensure that SME claimants are treated fairly. The FCA will engage with firms and senior figures in the industry both individually and through industry trade bodies to discuss its findings, its expectations and any changes which may be required. Additionally, the FCA intends to publish a discussion paper on the FCA Handbook approach to SMEs as users of financial services.

Turning to the issue of potential inadequacy of sums insured, the FCA noted (and welcomed this) that BIBA was due to publish technical guidance for its members to ensure that customers had adequate sums insured.