The increasing prevalence of one-size-fits-all insurance policies will lead to a rise in disputes over claims and a further erosion of trust in the sector, according to governance experts Mactavish.
In a new report, Mactavish highlights how disputes between clients and insurers over COVID-19 claims demonstrate a growing problem with standardised policies.
The company said that tighter governance rules and regulations, more global trade barriers and growing business complexity are all increasing the need for more transparent, clear and targeted insurance cover – just as standardisation is becoming the industry norm.
“Too often, generic policies are not being adapted – partly due to a scarcity of sufficiently skilled underwriters and brokers – leaving policy wording ambiguous and with significant gaps in coverage,” said CEO Bruce Hepburn.
“This enables different inferences to be drawn as to whether a provider should or shouldn’t pay out on claims – as seen with COVID-19 and many other complex claim disputes. This is the rule, not an exception.”
The High Court ruled earlier this month that UK insurers must payout on the majority of business interruption claims made during the COVID-19 pandemic, with thousands of policyholders set to share billions of pounds in damages.
Mactavish said that generic policies are rolled out across vast distribution networks, and sold to clients, with little regard to their sector, size or individual characteristics.
Although these off-the-peg policies may cost less for brokers and insurers to produce, the company explained how those savings do not translate into valuable insurance purchases for policyholders.
Moreover, clients often can’t understand the wording of their own policies because of the legal language used and their multiple endorsements, extensions, exclusions, definitions, conditions and ‘side letters’.
Mactavish urged buyers to demand change, and warned that unprecedented business uncertainty, a huge anticipated spike in claims, and diminished insurer reserves could lead to massively-reduced capacity across some classes and further erode the quality of available cover as prices rocket.
“Coming in the wake of the major fracture in trust between the real economy and insurers around the COVID-19 dispute, it’s essential that the industry puts its best foot forward,” Hepburn continued.
“In the long run, a high cost centre such as London cannot thrive on selling cheap, off-the-peg policies.”
Image credit: iStock
Author: Chris Seekings