Covid-19 – Business Interruption

There is widespread confusion over the coverage offered by business interruption insurance policies in these extraordinary circumstances.

This is a deeply worrying time for businesses of all sizes and we are doing everything we can to support customers with their claims during these unprecedented times.

As has been widely acknowledged, it is unlikely most UK businesses will be able to claim for disruption caused by Covid-19. Standard business interruption cover bought by the vast majority of businesses is intended to cover physical damage at a property which results in the business being unable to trade, such as from a fire or flood. Only a very small number of companies pay for extra cover for infectious diseases, and if they do, these policies include a list of specified illnesses known as ‘named notifiable diseases’. Consequently, new and emerging diseases, such as Covid-19, are usually not included.

The reason for this is that insurers price based on known risks. The approach to pricing insurance policies is to collect historical data and use that to understand how likely the event is to occur; the cost of returning the customer to the position they were in before the event; and the likelihood of a single event impacting multiple customers.

In the case of pandemics, which are rare compared with a car accident or flooding, these factors are difficult to estimate and likely to be significant when they arise. No insurance market can afford to underwrite the scale of losses a pandemic can bring and the coverage of policies reflect that reality. The other way to think about it is that, if policies included pandemic coverage, the difficulties in pricing and the size of the impact, would mean that they would generally make most insurance policies unaffordable. This could lead to underinsurance and for the normal risks that a business is exposed to not being covered.

Where we do provide cover for infectious diseases, other than in a very small minority of cases, we have for many years taken the default approach of providing clarity around which diseases are covered under our policies by means of listing them within the wording. This list does not include diseases linked to pandemics, such as SARs, Avian Flu or Coronavirus. This cover would usually also only apply when the disease was actually present at the premises or in the surrounding area.

We have every sympathy for all our customers who have been impacted by the coronavirus and, as always, will support them in whatever way we can.

Understandably, many customers will have sought advice about cover from their broker but, until and unless a claim is submitted in the normal way, we are unable to review each individual policy coverage.

You can also check our Frequently asked questions for Brokers.