business insurance COVID-19

As coronavirus continues to disrupt trading, many mobility companies will be going through their business insurance policy with a fine-tooth comb to see if they are able to claim. Guidance from the Association of British Insurers (ABI), however, has suggested it may be futile for most SMEs.

Representing over 200 companies in the insurance industry, the ABI is the leading trade association for the UK insurance industry which manages investments in the trillions of pounds.

According to the ABI, many small to medium size retailers across the UK will not have insurance that will cover the losses caused by the coronavirus.

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On the 17th March 2020, the government confirmed that businesses that have cover for both pandemics and government-ordered closure should be able to make a claim following advice to people to avoid the vast majority of shops and other venues.

For many retailers, the announcement signalled an opportunity to make a claim for the significant amount of sales revenues lost as a result of the government closing the majority of retail stores, however, the ABI quickly moved to affirm the position of the insurance industry.

“Irrespective of whether or not the government orders closure of a business, the vast majority of firms won’t have purchased cover that will enable them to claim on their insurance to compensate for their business being closed by the coronavirus,” stated the association.

What does typical business insurance cover?

For the vast majority of business insurance policies, day-to-day risks such as fire, flood, theft and accidents involving employees are normally covered, said the ABI, with only a small minority of businesses choosing cover that includes business interruption due to a notifiable or infectious disease.

For those companies that do have that specific extension, the list of infectious diseases covered are usually very specific and, given that latest strain of coronavirus, COVID-19, was unknown until the end of 2019, it would likely not be covered.

Advising its business customers following the outbreak and subsequent retail closure, French insurance giant AXA reinforced this point, stating: “Because this situation (and the virus) is so new, there are very few insurance policies that cover it. Some policies include compulsory closure caused by any notifiable infectious diseases, but the vast majority list the specific diseases they cover.”

The ABI explained that even for those small minority of businesses that purchased insurance that provided cover for unspecified notifiable or infectious disease, it would still not likely meet the requirements for a claim under the current circumstances.

“Such policies often respond only when the disease is present as the premises as they cover the interruption to trade caused where business premises have been infected by an illness such as Legionnaires’ disease or norovirus and where the building needs to be closed and cleaned to deal with the specific incident,” stated guidance from the insurers’ association.

“A very small number of businesses may have cover in place that specifically provides cover for contingency business interruption arising from notifiable diseases, such as Coronavirus, where their premises have been contaminated, but this is unusual and is not what these policies are typically designed to cover.”

Why the business insurance model does not work for pandemics

For many in the mobility, access and assistive tech industry, the revelation that the majority of business insurance products, including those that have business interruption for infectious disease, do not cover the latest pandemic will come as unwelcome news.

Outlining why the insurance model does not apply to this latest COVID-19 pandemic, the ABI said: “No insurance market provides widespread insurance coverage for pandemics and the UK is no exception. For such cover to be available at affordable prices for businesses would require a very significant subsidy from the government, given the scale of business disruption we have seen with the COVID-19 pandemic.”

In an article published in The Insurer, Huw Evans, Director General of ABI, explained why the insurance industry would be unable to honour COVID-19 claims with government assistance.

“Policymakers and business leaders who would like to change this situation will have to recognise that no insurance market in the world can do it on its own,” he said.

“In the UK, we have the largest market in Europe and the fourth largest globally with London the international capital of speciality insurance and reinsurance. Yet even in the UK, providing widespread insurance cover against pandemics would be virtually impossible without state support because the amount of capital insurers would have to hold against the risk would result in completely unaffordable prices for customers.”

According to Huw, UK companies turned over £4.1 trillion and employed 27 million people whilst UK insurers hold total assets of £2.2 trillion, making it “impossible using the normal model” if all businesses were to claim simultaneously.

The justification will come as little consolation to small to medium business and particularly retailers who have purchased the additional business interruption with notifiable and infectious disease add-on, however, who have incurred substantial lost revenue as a result of the outbreak.

With many small businesses, particularly in the mobility sector, being hit hard by the COVID-19 epidemic, the Forum of Private Business has called on insurers to at least honour the claims of those companies who had taken out notifiable disease cover.

THIIS contacted Mark Bates Ltd, a specialist provider of insurance policies developed for the mobility sector and retailers, and asked the company to clarify where its mobility retailer customers stand, particularly in regards to those with additional business interruption cover in their policies.

THIIS is awaiting comment.

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