BIBA defends London and UK cyber market but plans SME guide

The British Insurance Brokers’ Association (BIBA) has defended the London and UK cyber market, stating that although there is room for improvement, decent cover is available, particularly for larger firms. However, the association is working on guidance to help its members support SMEs to understand their cyber risk better and improve cyber protection. BIBA also told Commercial Risk Europethat it doesn’t feel broker conflicts of interest will become a big issue in a hardening insurance market. The association was responding to questions posed by CRE at its annual conference in Manchester this week, following concerns raised by buyer representatives on these two big issues. Late last year, insurance governance firm Mactavish, which now works solely for insurance buyers, published a paper listing eight common flaws it believes exist in cyber policies, following analysis of the London and UK market. Brokers and insurers denied the flaws exist. So, in an open letter, Mactavish challenged them to state publicly that no claims will be rejected because of these problems. In response, the Association of British Insurers (ABI) said it simply does not recognise the flaws raised by Mactavish, and challenged the company to share proof of any problems. Mactavish has since said it will publish detailed evidence of its research, reiterated calls for insurers not to deny claims because of the issues it has raised, and again invited the insurance market to join an open debate on the state of cyber cover. BIBA’s head of general insurance Alastair Blundell told Commercial Risk Europethat suitable cyber solutions are available and that, in his view, any problems with cover “aren’t as big as some others may feel”. He added that BIBA has been in contact with Mactavish to understand more about its findings. Mr Blundell conceded that cyber coverage “is not perfect”, particularly where it has been shoehorned into a more general business policy. But he said it is important to remember that “insurance is still responding to an emerging risk that people are trying to fully understand”. “It remains an emerging market. I would also make the point that London, in particular, helped pioneer this type of coverage and took a risk when a lot of the markets wouldn’t,” said Mr Blundell. He said that larger companies with risk managers will usually buy bespoke cyber coverage and argued that many of the issues raised by Mactavish therefore do not apply to such firms. However, the association believes there is room for improvement in the SME space. “BIBA has formed its own cyber committee. So, we are looking at the issue, specifically for SMEs where there is low penetration and a lack of understanding. Part of that study is to make sure that what is being sold in terms of coverage is appropriate,” said Mr Blundell. “We plan to put a cyber guide out in the third quarter for SMEs. It will explain what good looks like in terms of coverage. It is that type of guidance we want to provide. We would expect bigger, risk-managed companies to better know what they are doing,” he added. Meanwhile, Airmic has told CRE that it will continue to consult members and UK regulator the Financial Conduct Authority (FCA) about potential growing broker conflicts of interest in a hardening commercial insurance market, and will publish a paper on the issue later this year. The move comes after Mactavish raised concerns that broker remuneration is creating conflicts of interest and said things are getting much worse in parts of the commercial market that are hardening. It warned that payment practices introduced during the long soft market mean intermediaries now receive more and more from insurers, in some instances outstripping money from insureds. Both Ferma and Airmic recently said there are potential conflicts of interest caused by broker remuneration, that things are not perfect and there remain areas of concern. However, they said improving transparency means things have generally worked well in companies where insurance is handled by an expert buyer. But Airmic agrees that some conflicts will be magnified in a hard market and it is therefore investigating the issue to help members. “Vulnerabilities will indeed become more apparent in a hard market and we are redoubling efforts to raise awareness of the questions our members should be asking of their brokers. To this end, we will be consulting with our members, brokers and the Financial Conduct Authority at our conference in June, and publishing a paper this year,” Airmic’s CEO John Ludlow told CRE. UK regulator the FCA published a review in February that concluded London’s wholesale insurance brokers are not causing harm to insureds, following a study into anticompetitive behaviour in the sector. But it did find some areas for improvement, including on conflicts of interest. These include how wholesale brokers manage conflicts of interest and the level of information they disclose to clients. The FCA also found that contractual agreements between brokers and insurers have the potential to limit competition in some instances. Mr Blundell said the FCA inquiry shows that things are working well in the wholesale insurance market and doesn’t believe the hard market will change matters. “The wholesale inquiry gave our industry a pretty clean bill of health. So I don’t feel there is really a big issue there, or going forward,” he said. Airmic believes many of the issues raised by Mactavish are relevant in organisations where insurance purchase is not handled by an expert, and it believes the FCA should look into this further.

BIBA defends London and UK cyber market but plans SME guide

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