Article written and provided by Sophie Kingwell- Meader, Account Executive at Estate Insurance Group, for Beacon Gainer, private wealth advisory services group.
The emergence and spread of COVID-19 and the resultant enforced lockdown across multiple countries has quickly changed daily life for many and has caused exceptional challenges for both individuals and businesses. As the principle of insurance is to pay premiums when things are good so you have cover when times are bad, now, in this time of great uncertainty, many business owners are turning to their Business Interruption insurances to support them.
On 5th March 2020, the UK government-defined COVID-19 as a “Notifiable Disease”. This primarily affected the way that healthcare practitioners record cases, but also caused specific policies with a “Notifiable Disease” section to engage cover. Although this affected insurances such as personal and commercial travel, as the situation currently stands, COVID-19 losses are not being covered by the Property and Commercial markets.
This industry-wide decision has been made for three main reasons. Firstly, for the majority of Commercial Combined policies, Loss of Profit and equivalent covers are insured following Physical Damage. Secondly, for an event to be insured, there must be a clearly defined end and solution to reduce further losses or actions a policyholder can take to prevent a loss in the first case. Thirdly, pandemic diseases that are not part of a predetermined list have been excluded from commercial policies since the outbreak of SARS in 2003.
Under the current circumstances, in the majority of cases, there is no evidence that Physical Damage has occurred as a result of COVID-19 and the enforced lockdown. Many insurers have confirmed there is no cover under specific Business Interruption sections and, as the situation is live without a clear end or solution, are not offering COVID-19 extensions at this time. Finally, as an emerging disease “SARS-COV-2” was not part of the pre-defined diseases for which commercial policies offer cover. In general, losses due to COVID-19 are being viewed as “societal losses” and so it is expected that financial recompense to businesses will be issued by the government through grants or loans, not through future insurer contributions.
As the effect of COVID-19 on businesses and economies across the world continues to develop, so do governing bodies’ reactions to industry positions. The insurance market-wide stance was recently called into question with the FCA’s open letter to insurance company CEOs on 15th April, calling them to support customers and pay claims where provisions in Business Interruption wording could allow the coverage of COVID-19 related losses. This particularly affected insurer giant Hiscox, who responded with a market update that set out its perceived exposure to COVID-19 and the approximate number of their customers that they believe are directly impacted by “mandated government closures”.
Whether as a reaction to these insurer updates, lack of clarity around affected policies on responding to claims, and their decision-making process or otherwise, it was today announced that the FCA is obtaining a court declaration to resolve high-level contractual uncertainty around Business Interruption cover. This decision will likely have a profound effect on not just individual insurers and the customers for whom they hold cover, but the industry as a whole.