Update 24th March 2020:
Yesterday’s directive from the Government that all non-essential businesses must shut could impact on how some insurers treat business interruption claims and if their trigger has now been met.
Now as it is almost five weeks since my original blog it is patently clear that most insurers will not be responding to business interruption claims as a result of Covid19.
In my opinion there are a handful of insurers that could potentially suffer claims for non-damage business interruption because.
1) Their policies do not list specific diseases and state that “notifiable diseases” are covered
2) Their policies state that there must be closure by a competent authority
We can obviously not comment on specific insurers but recommend that policyholders contact their broker or insurers directly and I am sure that there is still a lot of debate to be had!
Furthermore, we have already received notification from some insurers that they intend to clarify their policies by imposing a specific exclusion relating to Covid19 on all new policies, renewals and potentially following policy adjustments.
Update 18th March 2020:
As the outbreak progresses and the UK ramps up it’s response, we have naturally seen an increase in inbound calls asking questions about business interruption insurance and whether or not there will be cover. The government classified the disease as ‘notifiable’ earlier in the month which although technically is ‘good news’, in reality doesn’t really offer much relief for businesses who are suffering. This is because standard business interruption cover, the type that most businesses will have purchased, does not include forced closure by authorities as it is intended to respond to physical damage at the property which results in business being unable to trade.
As widely reported in the media, government advice has been to avoid public gatherings, and in particular to stay away from pubs, restaurants, cinemas and the like. This is really hurting these businesses. There has been no formal notice to close from the government, so business owners feel cornered. Much like the ‘notifiable disease’ issue earlier in the month, business owners are looking to the authorities to issue formal instructions, in this case to close. Until this happens, people that do have cover in respect to ‘closure by authorities’, will not be able to claim.
As part of his daily updates to the nation, Boris Johnson directly referenced the insurance industry and their ‘requirement to pay’. This was swiftly followed by a statement from the Association of British Insurers ABI.
Whilst not directly referencing the Prime Ministers comments, the ABI have addressed the subject. Claims will be dealt with in line with the wording of the specific policy, as is the case with all claims. We have relationships with several underwriters and their specific wordings around business interruption and notifiable diseases is not necessarily consistent, some could be more favourable than others.
The ABI went on to say…
“The Chancellor’s statement today is consistent with our statement this morning where we said in the event businesses have the right cover, this type of notification could help make a claim.
But, as the Chancellor acknowledged, the vast majority won’t have purchased extended cover and this remains unchanged.”
Deep enough pockets?
The Independent newspaper takes a look at the subject. They interview OBR committee member Sir Charlie Bean who said the state will have to act as “insurer of last resort. There may be a question of whether the insurers have deep enough pockets to be able to pay out,” said Prof Bean. “This is why in some sense you need the state to be there as the insurer of last resort against what is essentially an act of God.”
In this together
Very few businesses are going to be immune from the effects of this outbreak. We are already seeing clients take measures to cut costs and make redundancies. We are all going to feel this, some more than others. Here at Macbeth we will do all we can to support our clients and work with insurers to make sure that where there is a valid claim, it is dealt with fairly and quickly. We have taken operational measures to do our bit to minimise the spread and flatten the curve. It’s business as usual from our perspective, well, perhaps not quite ‘usual’!
Update 4th March 2020:
It has been announced in the Telegraph this morning that the Government will formally register Covid-19 as “notifiable”. Although this is, in some respects, good news, it does not automatically mean that businesses will be able to claim under their business interruption insurance.
Depending on the insurer, there are certain circumstances that need to be met to trigger a valid claim. Most important is that the business premises will need to be closed due to the virus. For example, if there is an outbreak in a restaurant premises and it has to close, potentially some limited cover is available. However, If other restaurants in the area lose custom due to people deciding not to travel, then at the present time there is no cover.
Also importantly, some insurers specify exactly what notifiable diseases they cover. If Covid-19 is not on the list (it is unlikely that it is) there will be no cover.
I personally see that more claims are likely to be triggered if Public Health England start closing certain areas and businesses cannot access their premises. The particular extension that businesses should be looking for is called “Action of competent authorities”.
As policies will vary, I recommend that contact is made with the existing insurer or broker.
For the latest news on how the Coronavirus story is evolving, take a look at The Telegraph’s live feed.
How would your business deal with a disease outbreak? We’ve put together some questions to help you identify areas that may be at risk. If you can answer ‘yes’ to most of them, you’re doing well and should be well positioned to handle a serious outbreak. If you answer ‘No’ or ‘not sure’ to most of the questions, then your business could be at significant risk should coronavirus or any other disease outbreak impact your organisation.
When businesses consider business interruption and business interruption insurance, they are more than likely thinking about a catastrophe such as a fire or a flood that prevents them from operating from their premises. Because, unlike natural catastrophes, pandemics and epidemics typically do not cause immediate physical damage they are difficult to model and businesses have no way to measure their potential economic loss.
Over the past few weeks I have had several calls from business owners worried about what would happen to their profits if they were affected by a large-scale outbreak of the Coronavirus (2019-nCoV) in the UK.
Global broker Marsh, in collaboration with Metabiota and Munich Re, have an insurance product called PathogenRX. This is an insurance solution for US-based businesses and their global operations that provides business interruption cover following a pandemic where there is no need for any specific loss at a premise. The product was developed following the SARS outbreak in 2002 and the Zika virus in 2015 which was a threat at the time of the 2016 Olympics in Rio. The target audience for PathogenRX is aviation, sporting events and travel and tourism.
In the UK current options are likely to be limited. Individual policyholders are advised to check their business interruption cover to see what extensions are being provided.
Some common extensions are:
This covers consequential loss as a result of interruption of or interference with the business carried on by you at the premises as a result of illness sustained by any person resulting from any human infectious or contagious disease an outbreak of which the competent local authority has stipulated will be notified to them. Some insurers will specify which diseases they cover and the indemnity period and indemnity amount is likely to be limited.
Action of competent authorities
This extension offers slightly wider cover as the loss does not need to be at the actual premises. A common wording is: “loss resulting from interruption or interference with the business following action by the police or other competent local, civil or military authority following a danger or disturbance in the vicinity of the premises where access will be prevented”
The indemnity period and amount is likely to be limited and some insurers may exclude the first 24 hours of any loss.
Other types of insurance that deal with interruptions are:
Business Travel Insurance
The recommended action is to speak to the business travel insurance providers, however they are unlikely to provide any cancellation or curtailment cover if a trip has been booked after the outbreak started.
Key Person Cover
There is unlikely to be any restrictions on existing key person policies. If considering cover for the first time, insurers may now ask for more detailed information such as planned travel.
Although I would say that there is no need for any immediate alarm, it is of course good to plan should the eventuality arise. Having a robust business continuity plan in place with the ability for staff to work from home, may help minimise any potential losses.
Because coverage is likely to differ between providers, this blog is intended to provide general information only. In all cases I recommend contact is made with the existing broker or insurer.