Policy changes leave advisers' business clients exposed

Policy changes leave advisers' business clients exposed

Advisers have moved to protect their business owner clients after cross-the-board changes to insurance policies have left their clients at risk.

Over the past two years, the Prudential Regulation Authority and insurance bodies, such as Lloyds of London, have highlighted the risk to insurers that legacy business policies might lead to unexpected claims for data loss.

This was as the result of old policies covering damage to tech but not explicitly covering data loss.

Post the general data protection regime, any data loss arising from accidental damage has presented a new risk to insurers, with business clients potentially claiming despite insurance policies not explicitly covering these events. 

As a result, nearly every UK insurer has moved to change policies - both new and existing - to remove the cover, leaving many advisers' clients potentially at risk or facing significantly higher insurance costs. 

Rob Smart, technical director at Mactavish, said: “While we welcome attempts to bring greater transparency to the insurance market, the redrafting of many commercial property policies is leaving clients under-insured and exposed to a range of broadly 'tech-related' risks which they had believed would be covered.

"Some of the new wording we are seeing goes far beyond the intent of the Lloyd’s mandate, and it means clients are no longer covered in areas such as loss of data from flooding or a fire for example - even if it’s not related to a cyber-attack."

He said his clients were being forced to take out separate cyber insurance to cover these excluded risks.

Owen Thomas, chief sales officer for Premium Credit, agreed that small business clients could be likely to be put at risk. 

He commented: "If ‘technology’ cover is removed from commercial property insurance the policy holder is of course likely to become either underinsured, not insured at all in some key areas, or will have to secure additional, specialist cover. It seems inevitable that the policyholder will be burdened by further expense to receive the cover they need."

However, he also stated that advisers would be best-placed to help provide alternative solutions to clients that could spread the cost of cover and pay for insurance premiums in monthly instalments, such as premium finance. 

But not all financial advisers said this was a problem for their clients. Neil Liversidge, principal of West Riding Personal Financial Solutions, said he could see the value in the PRA moving to tighten up on insurance policies.

Mr Liversidge said: "On balance I think it's positive in terms of pricing cover properly. A small business client might need a sum assured of say £100k to restore its systems whereas a larger entity might need £5m.

"By making it an add-on, well-run businesses will assess how much cover they need and insure accordingly. If every policy includes say a standard £1m of cover then we'd likely see business insurance premiums going through the roof for data-lite businesses, with them effectively cross-subsidising the data-heavy.