Insurance firms must rebuild trust

THE INSURANCE industry has been under significant scrutiny since the lockdown was introduced at the end of last month. As most of UK business grinds to a halt, many firms which have been forced to close down have turned to their insurer for help, only to find that they are not covered.

You only need to pick up a newspaper to read headlines of insurers being heavily criticised during the coronavirus crisis for failing to cover small and medium-sized businesses for interruption to their trade.

The vast majority of UK firms are experiencing a tough time during the lockdown, with many worried for their very future. Some may never trust an insurance company again because their claim for business interruption cover has been turned away. So, I wanted to put the record straight on why so many claims may have been unsuccessful.

No insurance market in the world currently provides widespread insurance coverage for pandemics. To make this type of cover available to large and small UK firms would require not only sizeable premiums but significant subsidy from government, alongside a limit on the value of the cover.

It’s important here to point out that the basic model of insurance has always been about weighing the balance of probability and risk and covering the losses of the few by the many. Even if insurers had proposed that all commercial policies should include pandemic cover, this would result in a massive and unaffordable hike in premiums, which most small business owners just couldn’t bear.

Most firms will have purchased a business insurance policy designed and priced to cover standard risks. This type of policy is therefore very unlikely to provide cover for the effects of global pandemics, and insurers would have no obligation to pay out claims in relation to the Covid-19 pandemic. This includes forced closure by the authorities.

When it comes to business interruption insurance, most policies are intended to protect firms from the after effects of identifiable perils such as fire, theft, flood, etc, and for everyday risks in order to protect their businesses. In most cases where ‘business interruption’ includes diseases these are specified diseases and are identified in the policy in the same way as the physical risks. The cover is also intended to cover businesses for the disease, which has actually occurred at their premises and forced closure. But these policies do not cover global pandemics.

Only a very small number of firms will have cover where the notifiable or infectious disease is unspecified, potentially enabling them to claim for the impact of the Covid-19 pandemic.

At this point I should highlight that many involved in the insurance industry over the past few years have been guilty of selling on price. This has been driven primarily by the advent of online comparison sites. This may sound good for customers but the cheapest policy is not a bargain if it affords little coverage.

There is no doubt that the reputation of the industry has been severely tarnished over recent weeks.

For that the industry has only itself to blame. We have always been poor in communicating to the general public about the part we play in the economy and the vast amount of good we do for individuals and business.

Most people are probably unaware that the insurance industry makes a vital contribution to the UK economy, employing over 300,000 people across the country, attracting global capital and generating UK exports.

But for the many firms which will receive no claims pay-out from their insurer this is of little or no comfort.

As an industry we have been slow to communicate the position on business interruption claims with clarity and in some cases with empathy.

Some firms will therefore be cursing their insurer for not paying out in their time of most need. However, the majority of business owners and operators have accepted that their business interruption cover just doesn’t cover them for the coronavirus outbreak.

We need to do more to improve education about the nature of risk and what provisions are in place. More widely the UK needs to find a solution to protect against future pandemics.

And the insurance industry must play an integral part in this by ensuring UK firms have access to a solution, which is both affordable and accessible to all.