UK audit reform retreat: Weak response and implications for insurers

In 2018, the sudden collapse of Carillion – a construction and outsourcing giant – exposed glaring flaws in UK corporate auditing.

A short-sighted U-turn?

Carillion’s accounts had appeared healthy, yet the firm imploded with almost 3,000 jobs lost and the government forced to spend £150m to maintain public services. The disaster prompted widespread calls for audit reform to prevent similar corporate failures. The government initially promised a robust overhaul of audit and corporate governance rules.

However, in a feeble U-turn, ministers quietly abandoned the planned audit reform bill in 2026, claiming new rules “would increase costs on business” and were not a priority under a “pro-growth” agenda. This retreat – essentially prioritising short-term deregulation over long-term safeguards – has been criticised by some as a short sighted approach given the lessons of Carillion’s collapse 

Implications for insurers

For insurers, this policy reversal is potentially troubling. Insurers have a dual stake in strong auditing: as major investors and as underwriters of risk. When audits fail, the fallout often lands on insurers’ balance sheets.

Carillion’s collapse, for instance, left hundreds of suppliers unpaid – triggering an estimated £31m in trade credit insurance payouts to cover those bad debts The Association of British Insurers noted that Carillion’s demise was a “powerful reminder” of trade credit coverage’s value. In effect, poor corporate oversight translated into direct losses for insurers who had to pay claims on insolvency covers.

By retreating on audit reform, there is potentially an increased likelihood of another Carillion-style surprise failure. Indeed, a group of top investors warns that ditching audit reforms will force them to “price in more risk”, raising the cost of capital for UK companies. Insurers, facing similar uncertainties, may likewise respond with higher premiums or tighter policy terms for covers such as directors’ liability, credit insurance, and surety bonds. 

The retreat on audit reform comes at a time in which the risk landscape is already changing rapidly. Global civil unrest has been rising, adding volatility that insurers must already contend with. Over the past year, 53 countries saw an uptick in violent protests targeting commercial property, resulting in hundreds of millions of dollars in damage and business interruption claims. Insurance executives are warning that tepid economic conditions could fuel more riots and claims.

The industry’s response has been clear: the market for strike, riot and civil commotion (SRCC) coverage has hardened significantly. Premiums for riot insurance jumped by 10%–25% globally as insurers recalibrated for the 2020–2021 wave of civil disorder losses. In many cases, riot damage that was once “silently” included in standard property policies is now excluded or sub-limited, forcing businesses to buy separate cover.

Facing these external challenges – from political violence to inflation and climate risks – insurers value any measures that reduce uncertainty. Strong auditing and governance are seen as preventative medicine, catching problems early before they become insolvencies or scandals that result in large insurance claims.