Commercial insurers face more claims, slimmer margins from August - Fitch

Insurers are likely to face more more claims, more intense price competition and slimmer margins, Fitch Ratings said, due to changes to UK laws on disputing commercial insurance claims and timing of payments due to come into force in August and next year.

Coming into force on 12 August, the Insurance Act 2015 will make it harder for insurance companies to refuse a commercial insurance claim due to insufficient disclosure.

Firms will no longer be able to withhold payment if a business customer breached a requirement of the policy that was entirely unrelated to the claim, such as if the customer failed to install required fire alarms, but then claimed for a loss from flooding.

In May next year, the Enterprise Act 2016 will give customers the right to sue for damages caused by a late payment of their insurance claim.

"Together, we expect the new laws to result in fewer disputes over commercial insurance claims and an increase in the number of claims paid," Fitch said.

"When claims are disputed, insurers may also attempt to deal with them quicker to reduce the risk of being held liable for damages. Overall claims costs will therefore rise and insurers will increase premiums to compensate."

The credit agency also feels insurers will find it more difficult to compete on a better service offer as this is likely to become more homogenised.

"With less ability to on service, price competition is likely to increase, meaning firms are unlikely to be able to increase premiums enough to fully offset the higher costs. Higher overall premiums are also likely to make some customers such as small and medium enterprises even more price-sensitive, adding to the effect."

Commercial property insurance is felt more likely to see the largest impact than already-cutthroat commercial motor policies.

Fitch said although the largest writers of UK commercial property insurance are giant such as Zurich Insurance, Aviva and AXA, they are well placed to absorb the increased costs due to their geographic and line diversification.

"Smaller insurers with a heavy focus on commercial policies would be more exposed but the scale of the potential impact is hard to gauge."