Coronavirus not covered under standard business interruption policies says Aviva

Aviva chief executive Maurice Tulloch confirmed that Covid-19 coronavirus is not classified as a notifiable disease within its commercial business interruption (BI) policies, as the firm only offers a “minimum coverage” of included diseases.

Speaking this morning, following the publication of Aviva’s full-year results, Tulloch said: “On our policies, this [coronavirus] is not a notifiable disease, so we have minimum coverage in respect to business interruption in commercial. We’ll always respond to our customers when our products are triggered.”

Aviva’s business interruption policy wordings specifically excludes claims related to new and emerging diseases - this includes Covid-19 coronavirus.

This distinction to policy small print came about after the 2003 SARS outbreak, when Aviva sought to clarify what was, or wasn’t, covered under its BI insurance.

An Aviva spokesperson added: ”For the significant majority of Aviva business interruption policies, our cover is based on a specified list of diseases and has been since the SARS outbreak in 2003.

”These policies exclude business interruption due to new and emerging diseases, like the coronavirus. Our policy wording clearly identifies the diseases we offer cover for and also highlights that new and emerging diseases are not covered.

”The reason we do not provide cover for new diseases like coronavirus is that we can only underwrite against known and specified diseases – we cannot model for risks where the losses are an unknown quantity. Coronavirus is a novel disease and was completely unknown, and therefore impossible to quantify.

”Business interruption losses stemming from the current coronavirus outbreak are therefore not covered under the significant majority of business interruption policies.”

Coronavirus impacts

Despite this stance within its commercial business, Tulloch stated that “operational readiness” was the main focus for Aviva concerning the coronavirus.

“Our primary focus is on the operational readiness and safety of both our customers and our own staff, so that we continue to deliver on our promises, as we have been for the last 324 years,” he said.

“Our scale and strength of our balance sheet means we are well placed to meet this sort of unexpected challenge. [Our] foundations are strong, and we have all the necessary ingredients to succeed.

“It’s ensuring we’re able to respond to our customers. It’s ensuring that our staff are safe. It’s ensuring that our disaster recovery and business continuity plans are in place and ensuring that we’re able to have people work from home safely, but also make sure that key resources, where appropriate, are between multiple sites.

“In terms of the exposure, we’re a large diversified business, so will respond as our products are designed.”

Tulloch added that travel insurance was a key concern – within the past few weeks, Aviva has accepted 500 travel insurance claims that have the travel disruption add-on. Payouts here are around £500,000.

This is a drop in the ocean though; Tulloch confirmed that Aviva writes around £150m of travel insurance policies, however its general insurance total equates to £4.3bn – he said that travel is not a “massive line of business” for the firm.

Flood damage

Tulloch further tied his focus on great customer service to Aviva’s recent experience tackling flood damage arising from Storms Ciara and Dennis.

“We’ve seen just how important that service is during the recent storms here in the UK,” he explained.

“We were on the ground quickly and we had people working round the clock to help customers with things like emergency payments for food and clothes and organising temporary accommodation while their homes are dried out or being repaired.

“I think events like these really show Aviva at our absolute best. We saw roughly double the number of calls and claims during the February storms. They [ended] up costing approximately £70m and that’s about £20m above our long-term average for this time of year.”

Tulloch emphasised that insurers such as Aviva need to work in conjunction with the government and regulators, as well as private and public organisations, in order to tackle the increasing prevalence of flooding. This includes “ensuring that we’re not building new homes in known flood plains to ensuring that building codes and standards are updated”.

Aviva responded to around 13,000 customers during the two February storms.

‘Modest growth’

In terms of Aviva’s general insurance performance for 2019, Tulloch described it as delivering “modest growth”.

“Net written premiums increased 2% in 2019 to £9.3bn. Our combined ratio was 97.5%, helped by the strong turnaround in our Canadian business,” he continued.

For the UK, however, moving Aviva’s digital business into general insurance has impacted many of its headline figures – and not for the better.

Colm Holmes, Aviva’s UK chief executive for general insurance, said: “The result for the UK was 97.9% COR and that compares to a 94.6% [for] prior years so that deterioration is predominantly made up of the shift we announced mid-year of UKD into GI – that had an impact of 2.7% on COR.”

When this event is taken into consideration for calculating the figures, Holmes added that “it’s broadly flat year-on-year from an underwriting perspective when [it is] looked at that way. There’s no additional cost involved in that”.

Holmes further commented on how underestimating inflation had impacted the success of Aviva’s personal lines business in 2019.

He said: “Last year, we underestimated inflation and did not rate ahead of inflation and hence the impact on our personal line business.

“The COR stands at 99.3% versus 96% for commercial business. So, our commercial business has performed extremely well, growing at 7%.

“The outlook for 2020 is for further rate hardening across most commercial lines businesses, whereas personal lines we expect rating to be more in line with inflation, but we do expect to see a hardening of rates in motor and in home.”

Group-wide success

Although UK figures took a tumble, group-wide, Aviva recorded a 6% increase in its group operating profit for 2019, with profits improving from £3,004m in 2018 to £3,184m last year.

Tulloch said: “In 2019, we made a number of important changes to the business focused on ultimately running Aviva better. It’s still early days, but these results show signs of early progress and evidence of operational improvement across our businesses.

“We generated strong return on equity of 14.3%, one of our key financial objectives and ahead of our target of 12%. Operating profit is up 6% to a record £3.2bn. We further increased our capital strength with our Solvency II cover ratio up two percentage points to 206% with a surplus of £12.6bn.

“Aviva has a strong and resilient capital position, which we will continue to manage prudently. And I’m pleased to confirm that the full-year dividend has been increased by 3% to 30.09p per share; that’s good news for our half million individual shareholders and reflects our confidence in the underlying strength and fulfillment of our business.

“So overall, a decent start, but we’re under no illusions, there’s still lots to do to improve underlying results and ultimately run Aviva better.

“We will improve business performance, enhancing returns through [a] disciplined view on expenses and underwriting. We’ll focus capital and resources where we can achieve competitive edge and strong returns. We will take robust action across the portfolio where performance falls short, so where we see a better way of delivering value to our shareholders.

“Our focus remains on delivering great service and great outcomes for our customers and distribution partners around the world.”