Ashwin Mistry, chairman at independent brokers’ network Brokerbility, warns that brokers are duty bound to flag up increased risks to clients

The signs have been with us for some time now: unrated insurers going under, providers pulling out of key markets, the drying up of the capacity reservoir. We all knew it was coming, but brokers have been trading in soft markets for so long that many of them have forgotten how to place business when the cycle turns.

This hard insurance market is further complicated by intense Brexit uncertainty and the apparent end of the massive construction boom that has run unabated for the past decade.

Construction falling down 

Ashwin Mistry

Ashwin Mistry 

The Grenfell Tower fire, together with the first report of the inquiry, illustrates many of the issues that brokers and insurers now face on the construction front. Primarily, there is the vexed question of massive liability claims that might be expected to rumble on unresolved, well past the findings of next year’s second report.

But two further issues, in particular, highlight the delicate state of the current market. Firstly, the withdrawal of some insurers and greatly reduced capacity within the sector has left building inspectors and other industry professions unable to secure cover for their liability risks. At the very least, premiums have become prohibitive and excesses have gone through the roof, reflecting the present nervousness of providers.

Then there is the issue of aluminium composite material (ACM) cladding. The Grenfell report points the finger unequivocally at the cladding, which as we now know has been used extensively throughout the country in private and public buildings, including schools.

Liability for the massive cost of removing it has not yet been established and alternative measures, such as installing sprinklers in existing tower blocks, will have to confront the challenges of Victorian pipes and low water pressure. In the long run, the Grenfell claims can only add to the nervousness of insurers and push premiums up further.

Offering advice

Reduced capacity in a hard market ought to play into the hands of professional brokers with their risk-aware clients and strong relationships with key insurers. Brokers need to take a lead.

We are duty bound to flag up the increased risks to our clients. Areas, for instance, where businesses are likely to find themselves substantially underinsured include directors and officers liability insurance (D&O) and public liability, where many policies are now arranged on an aggregate basis, so that the limit of indemnity during the term of the policy is based on the total of multiple claims, not each individual claim.

But, if I’m asked to identify the one area of risk which could play havoc with the SME sector over the next decade, I would nominate cyber.

My florist in Leicester holds data for hundreds of its customers. So do the theatres and restaurants I frequent. And what about children’s nurseries, holding the medical history records of their charges? The damage to a business from the loss or criminal hacking of that data could easily prove terminal.

And yet the florist probably has a standard business policy with a premium of say £400 and no cyber cover. The necessary cyber insurance would cost a minimum of £1,250 in the current market. Probably out of the question financially for a small high street trader.

And yet it is incumbent on brokers to offer the best advice and inform their clients of the risks and available cover. Indeed, if a business suffers a major loss as a result of data theft, it would, in my view, have grounds for suing any broker who had neglected to flag up the potential remedy. A failure-to-advise scandal perhaps rather than a mis-selling scandal. But one we should take very seriously.

By Ashwin Mistry, chairman at Brokerbility