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COVID-19: Insurance update: 16 April

Posted on 16 April 2020

At the time of writing, there are reported to be some 93,873 confirmed cases of COVID-19 in the UK, with 12,107 people reported to have died in hospital as a result of it (an increase of 778 on the previous day). The Government is expected to announce an extension to the lockdown this week and Professor Openshaw, formerly of the Department of Health's Scientific Advisory Group for Emergencies, told BBC Radio 4's Today programme that talk of removing measures is premature. Available data confirms that containment measures do slow the spread of the disease but experts disagree as to when it will reach its peak and the Government has not yet announced a lockdown exit strategy. This leaves businesses having to forecast their own survival in the face of uncertain and sometimes conflicting information. Apart from the extreme human toll exacted by this crisis, the economic impact is overwhelming businesses and the insurance sector's response is under close scrutiny. 

Insurers are under increasing pressure with notifications linked to non-damage business interruption (BI) coverage extensions continuing to increase. On 15 April, the Financial Conduct Authority's (FCA) interim chief executive, Christopher Woolard, issued a letter to insurers on the topic of claims from small and medium firms for BI cover. The FCA has directed insurance companies to pay out in respect of valid claims "as soon as possible", failing which they will have to explain their decisions to the regulator. There is a huge emphasis on achieving a fair outcome for insureds. The FCA has suggested that, if there are reasonable grounds to pay part of a claim but not the full claim, insurers must make an interim payment.

On 6 April in the Financial Times it was reported that Huw Evans, director-general of the Association of British Insurers said: "These covers were written to protect, say, a restaurant against an employee getting norovirus, coming into the restaurant, spreading the norovirus around the premises and then the premises having to be shut for a period to be deep cleaned and the loss of business that would follow." He added, "Some people have argued they should cover a global pandemic which affects everything, but that's not what these policies are for."

Meanwhile, Bruce Carnegie-Brown, chairman of Lloyd's of London, has said "[insurers] will work very hard to try to make sure that customers benefit from the policies that they’ve got but it will be difficult to pay out if customers have not specifically bought protection.

The insurance market seemingly remains paralysed in the face of this crisis. Insurers may be taking stock of how best to respond to notifications without opening the floodgates and setting precedents in respect of payment of BI claims, whilst at the same time seeking to avoid facing regulatory sanctions.

Where a business has purchased ‘non-damage, denial of access’ extensions to BI sections of a policy, it must be the case that coverage may be available. BI policies are bespoke, so it is not safe to assume that press articles or generic government or industry guidance means that claims are not covered. The first step in protecting the positions of insureds is to ensure that appropriately worded notifications are made promptly to insurers.

In these unprecedented circumstances, it is important to consider business interruption and other potentially responsive insurance policies carefully. Documentation in support of losses should be collated – including for example, details of individuals infected on business premises, evidence of declining business activity, identification of additional costs incurred to mitigate losses, and all other information evidencing the financial impact of the virus on your business. To maximise the prospects of successfully claiming against your insurance policy, check policy wordings carefully, engage with insurance brokers, legal advisers and insurers early.

Practical guidance for COVID-19
Read the latest COVID-19 related updates on our hub.

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