The UK insurance industry is under fire from small businesses and hospitality market participants as details of business interruption pay-outs remain unclear.
Some market participants are seeking intervention from the government.
On April 29, Hospitality Insurance Group Action (HIGA) launched to hold insurance companies to account for coronavirus business interruption pay-outs, following an announcement by the Association of British Insurers (ABI) on April 25 estimating that £900m would be paid out by insurers for coronavirus business interruption. On May 1 the Financial Conduct Authority (FCA) responded to the dispute, announcing that it will seek legal clarity on business interruption insurance to “resolve doubt” for businesses.
“The [ABI] announcement is not a consolation for me,” says Juan Carlos Venegas, director, FA Forensics Ltd, who has been assisting businesses with quantifying their loss of earnings.
“The way I see it, because I did the same when the government announced the job retention schemes and the [Coronavirus Business Interruption Loan Scheme] loans, I already anticipated that it wasn’t going to work quite as well as it was announced. Until the criteria are defined it may look like good news, but then the disappointment comes when you may not qualify for it.
“There’s usually something in the small print which is the key element for the insured, either not to be able to claim or have the claim declines, or not being entitled to as much as they thought they would,” he says, adding that some businesses falsely think when they sign for comprehensive insurance, any business interruption will be covered.
On April 15, The FCA stated that most insurance policies bought by smaller UK companies do not cover disruption caused by coronavirus.
According to an ABI spokesperson, the association does not have precise figures on businesses that have the cover that would enable them to claim for a coronavirus disruption.
“Having said that, as our initial estimate of £900m likely to be paid out on business interruption claims for coronavirus points to, for firms who do have this cover, then some claims are likely to be substantial,” said the spokesperson in an email, adding that it is for the insurers to decide how to administer the pay-outs.
“What we can say is that no country in the world is able to provide widespread pandemic insurance, due to the global scale of the risk – something we are all too aware of at the moment. For cover to be more widely available and affordable in the future there would need to be some form of support from the government. The ABI is happy to be part of the debate about how that might best be achieved.”
But the role of the UK government remains uncertain. While the government has stepped in to assist banks with offering small business loans through CBILS, similar assistance has not been granted to the insurance industry.
“In terms of what the government can do, it’s a difficult one because it will be between how much pressure they can put on an insurance company to have a fair approach to the law, if you look at insurance as a contract. That’s a challenge, because that’s what they signed for at the time,” says Venegas.
“Unless the government for example were to do something similar to the [CBILS] loans where they make a guarantee so the insurance companies are not at a loss, but the insured isn’t losing either. It happened in other cases as well, many insurance policies don’t cover you for force majeure events.”
However Sonia Campbell, partner at Mischon de Reya - the litigation law firm advising HIGA - is doubtful of any government assistance.
“We think the government would be unlikely to intervene on the basis that a number of ministers have expressed the view that most businesses chose not to buy specific cover for pandemics – and therefore seems reluctant to force insurers to cover the business interruption losses now being claimed,” said Campbell in an email.