Business Interruption Insurance Update

The last few weeks have been a busy time for the insurance sector, which has been under increasing pressure from the Government and the Financial Conduct Authority (FCA) to consider Covid-19 related claims, in particular those related to business interruption losses. With customer queries set to increase, the FCA has encouraged insurers to show flexibility in their treatment of customers, and has stated it will assist them to engage extensively and constructively in the process.

The FCA is currently collecting information from firms in order to understand how individual policies are being assessed and how customers are being advised on whether their cover is appropriate. Insurers should be following this guidance from the FCA:

• Firms should consider the needs of their customers and show flexibility in how they are being treated during this time, particularly as policyholders will have to change their behaviour during the pandemic. We expect insurers to clearly communicate any policy exclusions that may impact the cover or use of individual policies, new sales and mid-term changes or renewals must clearly meet the customers’ demands;
• Firms should consider the needs and particular circumstances of individual consumers (taking into account any vulnerabilities) when considering making any changes to insurance policies. Firms must be able to demonstrate that they are complying with our rules and treating their customers fairly; and
• The FCA ask firms to consider whether their insurance policy terms are fair and transparent under the Consumer Rights Act 2015, whether due regard has been given to the interests of their customers and treating customers fairly (FCA Principle 6). Also, that policies communicate information in a way that is clear, fair and not misleading (FCA Principle 7).

An example of increased flexibility is Lloyd’s of London making it clear that it will pay all claims within pandemic or contagious disease extensions, stating that “all valid claims will be paid as quickly as possible”. Hopefully, more insurers will follow Lloyd’s approach.

The Government approach

The Government has responded by placing increased pressure on insurers to pay out on policies and to support their customers in this unprecedented time. On 26 March 2020, MP Mel Stride, Chair of the Treasury Committee wrote a letter to Huw Evans, Director General of the Association of British Insurers (ABI) to seek answers on how the insurance sector is responding in a time when many will be looking to their insurers for assurance.

Examples of some of the questions posed in his letter are as follows:

1. How many of your members (by type of cover, e.g. commercial, travel) have ceased to offer a product since the onset of the crisis?
2. Can members provide an estimate of the amount of money, in aggregate, firms expect to pay out for business disruption in the face of the coronavirus?
3. Can members provide details of the approach that they are taking regarding the provision of cover for the costs to business relating to Covid-19 and where there may be some flexibility shown in respect of this element of potential cover?

In its response to the Government’s enquiries, the ABI has recorded record pay-outs on travel insurance of £275m. Although many policies do not cover pandemics, ABI members are working to support customers where there are valid claims by making swift payments, interim payments and providing quick and clear answers to enquiries.

Some policies with general extensions for notifiable disease extensions do not specify certain diseases, in these cases, business interruption cover for Covid-19 may apply if Covid-19 is present at the premises and all policy conditions are met. Another potential avenue for flexibility applies where businesses have been forced to close as this could trigger claims under ‘non-damage, denial of access’ extensions and therefore permit pay-outs. We recommend that if you’re unsure whether your policy covers losses caused by the pandemic, you contact your broker or one of the HCR team.

What does this mean for customers?

• Do check what insurance you have in place
• There is merit in exploring with your broker and/or insurer to ascertain what cover is available
• Given the expectations of the FCA and the pressure from the Government, consider making a claim as the ‘goalposts’ are moving; and
• If cover is declined consider obtaining professional support to present and help value your claim.

We’ve outlined how to navigate the steps of claiming for business interruption losses on your insurance, in our flowchart and article.