29th May 2015

Harris Balcombe Response to FCA Thematic Review into the Handling of Insurance claims for Small and Medium-sized Enterprises

The FCA found that there was frequently a “gap” between SME’s expectations of the claims process and the service they actually received. In particular the Loss Adjusting community came in for heavy criticism.

This criticism bears out the experience that Harris Balcombe has found over several years.

Whilst it is true to say that there are some excellent Loss Adjusters, it is also, according to the findings of the Review, the case that there are very many Loss Adjusters who do not deal with claims adequately on behalf of the Insurers who appoint them and pay them.  Overall, of the 100 claimants who were interviewed on behalf of the FCA, 46% expressed themselves as being fairly dissatisfied or very dissatisfied with only 16% expressing themselves as being very satisfied.

Key findings of the Review included claimants being subject to some severely impactful financial and emotional stresses for more severe and complex claims.  Elements surrounding the claims could be found to take up considerable time and energy which can be damaging both to the business and to the responsible individuals.  There were many examples of perceived incompetence amongst Loss Adjusters with claims not being given the timely attention and responsiveness that SME’s felt they deserved.  Some claimants who were interviewed felt that Loss Adjusters would do “anything they can” to reduce settlement.  The reported behaviour of some Loss Adjusters could be said to be far short of acceptable.

A number of claimants who were interviewed found that at the initial point of claiming and following this, they were left with no clear idea of what their next steps should be.  This situation occurs often when they are at their most vulnerable.  Many claimants feel they are not given a clear “project plan” highlighting what the stages of the claim will be and the timescales that are likely to be involved.

A number of claimants also found that the eventual settlement fell short of expectations and there were claimants who found that they were left considerably out of pocket.  There were also examples of both interim and final settlements taking excessive amounts of time before they were finally paid and in some cases the payment only made after complaints were made or threats of complaints had been made either to the Insurer or to the Financial Ombudsman Service.

The appointment of a Loss Assessor to act for the claimant were often seen as providing great help to the claims process.  They were seen as being invaluable in helping to navigate the insurance process, deal with “difficult” Loss Adjusters and escalate claims where necessary.  In particular, in cases involving business interruption, claimants appreciated someone to outline what they can claim for and helping them prepare the necessary evidence.

One claimant described the Loss Assessor acting for him as “the most efficient man I have ever met, and I will always be grateful to him”.

Some Loss Assessors have clearly been shown to transform the outcome of claims.  One claimant said “they immediately identified that our claim was not being dealt with by the right department – in terms of the extent of the damage – so they fast tracked this through.  When we showed them the damage they were shocked at how little advice or attention we had been given . . .  They helped us to structure the claim and told us what we should be claiming for.  They were professional and spoke the same language as us.  They really fought our corner.  I only wish we had appointed them sooner”.

The Report contained comments from several claimants that Loss Assessors were sometimes seen to be overly familiar with their loss adjusting counter parts acting for the Insurance Companies.  This is, of course, a particular problem where the Loss Assessors are, themselves, chartered Loss Adjusters and in particular where they continue to take instructions as Loss Adjusters whilst at the same time working as Loss Assessors.  This practice has already been banned in Florida USA and is likely to be outlawed in other states shortly.  The FCA should be considering this as well.

Some Loss Assessors are provided under a scheme arranged by the Brokers.  Some of the schemes make a virtue of using only chartered Loss Adjusters to carry out the assessing function.  In the light of the criticism levelled at Loss Adjusters one wonders if these so-called virtues will be stressed in the future – especially bearing in mind the position in Florida as mentioned above.

At the launch event held at the Financial Conducts Authorities Head Office, a question was asked as to whether, in the future, Loss Adjusters were going to be regulated by the Financial Conduct Authority.  At the moment they are not regulated other than via their instructing Insurers.  The FCA representative said that this situation was being considered at the moment.  We hope that this is regularised quickly to enable a level playing field for all.

Although the Review did not find evidence of the admission of liability on claims being unduly delayed, the reality of our experience is that this frequently happens.  Accepted as best practice in US is that liability should be accepted or rejected (with a substantive explanation) within 28 days of a loss occurring.  Failing this the Insurer is required to explain to in Court liability has not been accepted and to justify any further delay.  We would be very pleased to see this practice introduced in the UK.

Further consultation with the FCA is going to take place over the coming weeks and it is hoped that this will lead to :

  1. The direct regulation by the FCA of Loss Adjusters.
  2. Greater awareness of the services that Loss Assessors can and do provide.
  3. Consideration to be given to the raising of the “micro-business” limits on referral of complaints to the FCA so that any SME with a complaint can bring that to the Financial Ombudsman. At the moment they are barred from doing so unless they comply with strict criteria including turnover of less than €2m pa.

The Review found, in line with our own experience, that sums insured are frequently inadequate and there is little knowledge by claimants of the problems associated with breach of warranty and non-disclosure.  It was stated that BIBA were producing a guide document to try and reduce these issues.  It is long overdue.

Two final interview quotes set out very clearly the thrust of the findings.

Getting them to replace everything was a real penny-pinching process in terms of the material they were using.  They were always to looking to cut corners”.  “It felt like they were here to save the Insurance Company money.  That’s what it felt like for me.  We were claiming £x amount, and it was like his job to get it for a discount”.

In contrast, where a Loss Assessor was appointed there were examples where they were able to point out other aspects of the claim which would be covered under the policy.  This was expressed by one SME as “he got my insurance policy, he was able to literally tell me what every single term meant and how it affected me and what I could and couldn’t claim for”.

Perhaps this review and the damning findings in so far as Loss Adjusters are concerned, will lead to a more level playing field for insurance claims in the future.

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