What does COVID-19 mean for my policy, and do I really know how it works?
UK policyholders have been dealt a huge blow to find out that some of their policies hold no weight against COVID 19 related losses, and a few are taking it out on insurers. Some insurers are facing legal action from SMEs who say that their legitimate business interruption (BI) claims have been unfairly turned down. ABI (Association of British Insurers) made a statement last year stating that re-establishing trust is job #1 for insurers, but with everything going on, “my spidey senses are tingling” and I sense further trust issues.
However, let us take a step back and understand how some insurance policies might respond to COVID-19 related claims — starting with the most affected lines of business.
Business Interruption (BI): is an insurance policy that covers the loss of income that a business suffers after a disaster. Unfortunately, only a few BI policies will protect the insured against COVID-19. The UK government officially classed COVID-19 as a notifiable disease and one could guess, it was partly to help policyholders get some compensation from their insurers. However, most BI policies have basic cover and therefore do NOT cover pandemics.
· Where BI policy extensions cover notifiable / infectious diseases, they typically list the specific diseases covered in the wordings. Unfortunately, these extensions generally exclude notifiable diseases that are recognised after policy inception, such as COVID-19.
· An even smaller number of policies will provide cover where the infectious disease is unspecified, potentially allowing policyholders to claim for the impact of COVID-19. However, insurers can argue that such policies can only provide cover when the disease has infected the business premises and have to be shut down for disinfection. In short, claims from policies that cover unspecified diseases have the highest chance of success but policyholders affected should file a claim anyway.
Event Cancellation Insurance: covers the cancellation, postponement, abandonment, and curtailment of events; resulting in a loss to a business. Unfortunately for the insured, many policies will not cover quarantine / restriction because of a communicable disease. The nature of transmission of COVID-19 makes it by definition, a communicable disease. ECI policies that cover “all causes” (which are few) can cover cancellations due to COVID-19, but could also require the insured to mitigate the loss. This means that the insured needs to show he/she has made best efforts to reschedule the cancelled event.
Employers Liability (EL): is an insurance policy that protects an employer/business against the cost of compensation claims made in the event of an employee injury or work-related illness. EL might be a concern here, particularly if employees can prove the employer’s failure to provide adequate protective equipment. Furthermore, with ‘working from home’ expected to be the new normal, do you think less employers will buy EL cover?
Directors & Officers (D&O): D&O policies offer liability cover for company managers/directors to protect them from claims that can arise from decisions taken while on duty. Shareholders can argue that the actions of the company have caused a financial loss to them, arising ultimately from the pandemic. For example, this could be the failure to implement adequate contingency plans to protect against the loss of productivity/trade following the effects of the pandemic.
Here are themes I see occurring in the near future…
Boris, every little helps? Insurers are calling for the government to find a solution as some claim that COVID-19 is too large & systemic to cover; unlike government backed insurance schemes for terrorism (i.e. Pool Re). Bare in mind that the ONS has announced that Pool Re should be classed as a government entity, which now sits on the government’s balance sheet . I reserve any comments on how willing the UK government is to subsidise a back-up cover (Pool-Re replica) for nationwide infectious diseases post-pandemic. I would like to hear your thoughts on this in the comment section below.
Policy uptake: I foresee a trend of prudent policyholders (post-pandemic) who will ask more questions of their insurers & brokers before buying/renewing policies. The current pandemic has altered the value of some insurance products, in the eyes of affected businesses. Insurance entities should be looking at whether their products still offer value and should take more of a tailored approach in designing products that better suit clients.
Trust: Globally, insurers have an uphill battle re-building the trust of policyholders. ABI stated in a report, that two out of three millennials believe that insurers may fail to pay out in the event of a claim. Insurers must take a closer look at customer journey, improve CRM systems to harness data to draw key insights and resolve customer issues on the first try.
There is no doubt that the insurance industry is critical to protecting businesses and I trust that insurers are working tirelessly during these unprecedented times. Do you think the UK government could/should step in, and can insurers regain the trust of business owners? Feel free to share your thoughts below.
Source(s): ONS, ABI, FCA