Small firms are encountering widespread problems in their dealings with the insurance market, amid rising premium costs, a new report has found. FSB’s new publication, Paying a premium? Reforming the insurance market to work for small firms, looks into the price of insurance and whether the products on offer are suitable for small business customers. The findings expose concerns about whether the insurance market is performing adequately for small firms and self-employed people. With high inflation putting general pressure on small firms’ bottom lines, the report’s finding that a clear majority (60%) have seen their insurance premiums rise in the last year is an illustration of the cost squeeze facing small businesses, who cannot in most cases operate without various forms of cover. Over half (52%) of those whose premium costs have risen say that the rise is 11 per cent or greater, while some individual businesses have seen cost rises far in excess of that – particularly following a claim. The pandemic brought many underlying problems with insurance into sharp relief, as small firms had to fight hard for their business interruption insurance to be honoured, leading to significant uncertainty and worry at a time when they were already fighting to survive. Other types of insurance, particularly professional indemnity insurance (PII) – which is very often a trading requirement for firms in areas such as accounting or architecture, among others – have seen their markets harden, restricting access to cover and the protection afforded to customers in the wake of COVID-19. The report includes numerous recommendations for regulators, insurers, and the Government on how to resolve or improve many of the difficulties small firms face around insurance, including:

• The Government should work together with insurers and the Financial Conduct Authority (FCA) as the regulator to agree specific conditions for forms of Government support that should not be taken into account when calculating business interruption insurance claims.
• The Financial Conduct Authority should be explicitly required to consider intervening in a market if it becomes clear that there is a segment/sector of businesses that are unable to obtain insurance.
• The Government should convene discussion with relevant sector-specific regulators and professional associations, to ensure that PII requirements that are imposed as a condition of being able to practise are assessed so they do not disadvantage small businesses. The FCA should carry out a market study of PII, given recent price increases and market hardening.
• The Government should use the Procurement Bill to remove barriers for SMEs in accessing public procurement opportunities. This should include commitments not to impose unlimited liability for public contracts, to share risk reasonably, and to ensure that both PII and public liability insurance requirements in public contracts are proportionate to the size of the contract.

FSB national chair Martin McTague said: “Cover for risks of all kinds – from fire to flood to less tangible dangers – is vital to small businesses’ continued ability to trade, but our report indicates that there are problems lurking under the surface which, if left unaddressed, could further hamper small firms’ ability to compete on an equal footing. “Rising cover prices leave firms caught between a rock and a hard place, forced to pass on higher costs to customers, or to cut back on investment and expansion – or even to risk opting for a lower level of cover, which may leave them painfully exposed if the worst should happen. “Long, complex contracts present difficulties to smaller businesses without a whole department dedicated to deciphering legalese, and runs the risk of small business customers believing they have purchased adequate policies, when in fact they have not. “Meanwhile, procurement processes which mandate unnecessarily high levels of insurance for relatively small contracts put them out of the reach of small businesses, once again leaving them on an uneven playing field. “Our recommendations, taken as a whole, will help to make insurance easier and more cost-effective for small businesses to access, allowing them to be sure that, by paying for a premium, they are getting a premium product in return, one suited to their business’s particular needs.”

The first six weeks of Joules’ new financial year have seen retail sales growth of 8.5% year on year. The news comes as the Market Harborough-based lifestyle group provides a trading update following the completion of its FY22 financial year on 29 May 2022. Joules noted that due to additional cost reductions, it anticipates FY22 adjusted profit before tax and adjusting items to be slightly ahead of current market expectations. The company added that it is “making good progress on its plans to improve profitability by simplifying the business and optimising the cost base.” This includes implementing plans to reduce its global wholesale accounts to focus on long-term profitable partnerships, shorten product lead times, and diversify the group’s ethically sourced supplier base. Joules has also received an extension to banking facilities. As of 26 June, the group had net debt of £17.7m, giving £15m headroom within its banking facilities, and has now received credit approval for a further £5m headroom on its borrowing facilities with Barclays until November 2022 to support working capital requirements over the group’s forthcoming seasonal borrowing peak.

Grant Thornton has been handed financial sanctions of over £1.3m for Sports Direct, now Frasers Group, audit failings. The executive counsel of the Financial Reporting Council (FRC) has issued Final Decision Notices under the Audit Enforcement Procedure (the AEP) and imposed sanctions against Grant Thornton (GT), as well as Philip Westerman, formerly a partner of GT, in relation to their statutory audits of the financial statements of Sports Direct International plc for the financial years ended 24 April 2016 (the 2016 Audit) and 29 April 2018 (the 2018 Audit). In respect of the 2016 Audit a financial sanction of £1,700,000, adjusted for mitigating factors and admissions/early disposal to £1,130,500, has been imposed against GT. In respect of the 2018 Audit a financial sanction of £350,000, adjusted for aggravating and mitigating factors and admissions/early disposal to £193,375, has been imposed against GT. Non-financial sanctions comprise, in respect of the 2016 Audit, a requirement for GT to report to the FRC on whether changes made to its audit methodology are resulting in a better exercise and documentation of an audit team’s judgement regarding key audit matters. In respect of the 2018 Audit, there is a requirement for GT to undertake thematic reviews and report to the FRC as to the efficacy of enhancements it has introduced regarding the audit of inventory provisions of retail entities and the use of audit data analytics to audit revenue. Mr Westerman meanwhile has been handed financial sanctions in respect of the 2016 Audit of £90,000, adjusted for admissions/early disposal to £63,000, and in respect of the 2018 Audit, a financial sanction of £30,000, adjusted for aggravating and mitigating factors and admissions/early disposal to £16,575. The FRC noted that the adverse findings against GT and Mr Westerman, admitted at an early stage, concern basic and important requirements which are designed to ensure the quality and effectiveness of an audit; they are fundamental to the work of an auditor. As a result of the adverse findings, both the 2016 & 2018 Audits failed in their principal objective of providing reasonable assurance that the 2016 & 2018 financial statements were free from material misstatement. The FRC said that in respect of the 2016 Audit, there were serious failings in the conduct of the audit as to whether Sports Direct’s financial statements contained the necessary disclosures to draw attention to the possibility that its financial position may have been affected by its relationship with ‘Delivery Company A’. With the 2018 Audit, there were failures in audit work relating to two specific areas of the audit: inventory provisions and website sales revenue. The inventory provision in 2018 was £162.2m and an increase on the previous audit year. It was a highly material amount. Website sales was the second largest area of revenue for Sports Direct in 2018, accounting for 20% of total revenue. GT and Mr Westerman identified that both were areas of significant risk in the 2018 Audit. The FRC said GT and Mr Westerman failed to obtain sufficient appropriate audit evidence, evaluate whether information provided by Sports Direct was sufficiently reliable, or to prepare sufficient audit documentation commensurate with the risk in relation to these two areas of the audit. Jamie Symington, deputy executive counsel to the FRC, said: “The audit failings in this case were serious and relate to fundamental auditing standards. It is particularly important that auditors follow up with due rigour where they have identified potential related party transactions as a significant audit risk. “Auditors must adopt a mindset of professional scepticism, and exercise good judgment based on sufficient and properly documented evidence. The package of financial and non-financial sanctions imposed by the FRC on the auditors in this case will help to drive improvements at the firm and the wider industry.”