THE £1BN INSURANCE BLACK HOLE
Thousands of businesses face ruin because insurers WON’T pay out on policies designed to protect against a contagious disease. Today, Money Mail demands action to stop these strivers being sucked into...
HUNDREDS of thousands of workers face redundancy because insurance giants are refusing to pay out in a £1 billion ‘coronavirus cover con’. Tens of thousands of small and mediumsized businesses are at risk of bankruptcy because of the ‘disgraceful’ and ‘immoral’ attempt to wriggle out of releasing the vital funds.
This is despite them having paid for business interruption insurance policies promising them financial protection against closure due to outbreaks of a contagious disease.
Campaigners yesterday called for the Chancellor to intervene urgently, warning that firms face going bust every day because of the lack of cashflow to keep them afloat.
Taxpayers are footing a huge part of the bill for the non-payments, which has forced companies to put more staff on furlough.
And the cost to the public purse could skyrocket as more and more businesses face bankruptcy without the lifeline of the insurance payouts.
Over the past decade some companies have paid more than £40,000 for the business interruption cover — which they chose because it was promoted as being wide-ranging — but are now not receiving a penny.
Their premiums helped drive huge profits for the insurance firms and vast rewards for their bosses — with the chief executive of Lloyd’s of London underwriter Hiscox making more than £2.5million in the past two years alone.
SMALL-BUSINESS owners say the refusal to pay their claims is an exceptionally ‘bitter betrayal’ because Hiscox boasts that it offers its clients ‘peace of mind, by providing advice, expertise, a safety net or simply an arm around them when they need it most’.
Its stated company values also include ‘integrity’ and ‘doing the right thing, however hard’ and, just six months ago, CEO Bronek Masojada insisted: ‘Paying claims is what we are here for.’
FTSE 100 giant RSA and Australia’s QBE are among several other firms under fire.
Most business interruption policies only cover common hazards that can put a firm out of action, such as fire and flooding. But some specifically promise to cover disruption caused by infectious diseases.
Despite this, insurance companies are rejecting claims, in some cases arguing that Covid-19 is not covered because it is a new disease, or that the impact of the Government lockdown is not included in the policy.
Nightclub operator Donald Macleod fears he may have to make staff redundant because his insurers are refusing to pay out.
Mr Macleod is heading a fight against the insurance companies and has been contacted by dozens of Scottish businesses in the last few weeks since he started speaking out on the issue.
The 58-year-old, who owns The Garage and The Cathouse venues in Glasgow, has business interruption insurance with QBE but his £200,000 claim was rejected.
He is currently topping up the wages of his 170 furloughed staff so that they remain on full pay.
‘We are very grateful for the furlough scheme and I topped it up to their full wages because there is no way they should have to lose out,’ he said. ‘But clubs will be among the last businesses to reopen because we can’t operate with social distancing.
‘I pay £57,000 a year for insurance that includes business interruption from notifiable diseases which Covid-19 is, but the insurance companies are not paying out.
‘It’s crackers. These companies are worth an absolute fortune with profits of billions. I am currently not making any money from my businesses and the insurance would have helped cover wages. Sadly, if this carries on for several more months with no payout then most of my staff may have to go.’
Simon Sloane, a lawyer with Fieldfisher who is acting on behalf of clients in dispute with Hiscox, RSA and QBE, says: ‘This insurance would have been in their premium. It was part of the deal, so the insurance companies should now pay up. But at the moment there is a blanket refusal by insurers because they always fight where they don’t want to set a precedent. Even if they agree in the end, many businesses will have gone under by then.’
Most companies with this form of business interruption insurance would be entitled to £100,000, meaning that for 10,000 businesses the total owed would be £1billion. A Hiscox spokesman says: ‘We understand these are incredibly difficult times for businesses and we are paying claims covered by the policies we issue fairly and quickly.
‘We don’t comment on individual claims but, as the Financial Conduct Authority has said, most UK small business policies across the industry do not cover pandemics. Along with the Association of British Insurers, we welcome the FCA’s recent initiative to accelerate resolution of disputes.’
An FCA spokesman says: ‘Our legal action...is the quickest route to clarity and by covering multiple policies and insurers, it will also be of most use across the market.’ An Association of British Insurers spokesman says: ‘Unfortunately, no country in the world has an insurance market that is able to offer widespread pandemic cover.’
POLICY WORDING VERSUS REALITY:
HISCOX COVERS: ‘Your inability to use the insured premises due to restrictions imposed by a public authority during the period of insurance following . . . an occurrence of any human infectious or human contagious disease, an outbreak of which must be notified to the local authority.’
WHAT IT TOLD CLAIMANTS: ‘The restrictions the government has imposed are part of its national response to reduce the impact of the coronavirus pandemic; they were not issued following or in response to “an occurrence” at any specific location, placing them outside the scope of the policy.’
QBE COVERS: ‘Any human infectious or human contagious disease ...an outbreak of which the local authority has stipulated shall be notified to them...within a 25-mile radius’ [of the premises.]
WHAT IT TOLD CLAIMANTS: Cover only provided ‘where loss is in consequence of the occurrence of Covid-19 at the relevant locations and not where losses are in consequence of...wide-scale government measures.’
RSA COVERS: Loss as a result of closure or restrictions placed on the premises as a result of a notifiable human disease manifesting itself at the premises or within a radius of 25 miles.
WHAT IT TOLD CLAIMANTS: requires evidence of losses due to a specific local outbreak that led directly to closure or restrictions. The policy does not cover losses arising from a general reduction in the number of bookings or increased cancellations as a result of the coronavirus pandemic.