Ben Carey-Evans, an insurance analyst at data and analytics firm GlobalData, says the recent Financial Conduct Authority announcement that multiple insurers are to back down on the coronavirus policy dispute and pay company owners with business interruption policies, represents a “significant turnaround for the industry.”
The UK regulator announced on May 1 that it would seek to obtain a court declaration to resolve contractual uncertainty around BI coverage.
It then approached 56 insurers and reviewed over 500 relevant policies from 40 insurers, identifying 17 policy wordings that capture the majority of key issues that could be in dispute.
Carey-Evans notes how, up to this point, the industry had been stating that claims were not valid because of pandemic exclusions.
“In reality, there was no positive outlook for insurers in this dispute,” explains Carey-Evans.
“Paying out will cost millions in claims as businesses around the country have been shut down or severely restricted during lockdown.
“However, not paying out would also have led to reduced consumer trust, with many business owners likely to avoid taking out any form of business interruption insurance in the future.
“GlobalData’s 2019 UK Insurance Consumer Survey found that the uptake of business interruption has been increasing over the past few years. It has risen from a penetration rate among small and medium-sized enterprises (SMEs) of 11.1% in 2015 to 17.3% in 2019.”
Carey-Evans believes this means a significant number of existing policies will be up for renewal in 2020 and that recent trend shows that it is a growing product and businesses are likely to be even more interested in it if it does cover pandemics going forward.
“The scale of disruption caused by COVID-19 will make pricing business interruption premiums with pandemic cover included extremely difficult.
“However, those insurers who are committed to paying out will surely see large increases in its penetration rate in the coming years.”
