A review of the Riot Damages Act has recommended insurers should only be able to claim back payouts to businesses with a turnover of under £2million. The home secretary Theresa May commissioned Neil Kingham to undertake the review and Mr Kingham has stated that the cap would make sure small businesses could buy cover in potential riot areas whilst limiting the cost to taxpayers.
The cap is intended to remove the entitlement of insurers to compensation in respect of payments made to clients above the threshold. Although this may lead to higher charges for those customers, it is unlikely that it would do so for multiple stores whose premiums are set by reference to their portfolio of shops or businesses, as opposed to individual businesses.
Mr Kingham has said that insurers’ reaction to the proposed cap was so far encouraging. Although it is understood that they would prefer no cap at all, the industry recognises the need for government constraints with regards to the possible cost of riot compensation, and that this cap is much better targeted to protect the insurability of small business in vulnerable areas. It is unlikely that total premiums will rise significantly as result of the cap, given the relative low risk of riots set against insurers’ total business portfolios.
The report also recommends a ‘riot claims bureau’ should be set up by the Home Office and insurance industry. It would be staffed by claims handlers and loss adjusters from a range of companies and be ready to swing into action immediately following a riot. The report also stated that the police should remain accountable for riot damage. The ABI Director General commented “The recommendation that insurers should continue to be able to recover from the state certain riot payments made to customers is vital if riot cover is to be affordable and available.” However, he went on to warn that the recommended cap could be a “disincentive for some large firms to locate in some areas”.
Insurers have so far paid out £167.3m to policy holders following the riots in 2011. The state has paid £35.2 million – and the final figure could well exceed £100 million.
Business insurance can be a complicated product to purchase, and it is sensible to seek professional advice. Many businesses overlook certain aspects of their business insurance which may, in the future, impact significantly on their cash flow and ability to continue to operate. At Westhill Insurance Services, we understand the significance of having the right insurance to suit your business and we go to great lengths to make sure you have what you need, not what you don’t! So next time your insurance is up for review, make one quick call to our experienced advisors and see how we can help you protect your future: as an independent broker, we will shop around to find the most effective policy for you – and your budget. Making provision for the future is a vital aspect of any business plan, so don’t leave something this important to chance. Who would have foreseen the 2011 riots and the impact they had on businesses unfortunate enough to become embroiled in events? A professional insurance adviser could save your business from significant financial future damage.