Universally paying BI claims not covered under policy terms would put insurer solvency at risk, says ABI

ABI director general Huw Evans has said that the cost of insurers paying business interruption (BI) claims that were not covered by policy wordings would put their solvency at risk.

Replying to an open letter from Stephen Gould, chairman of the One Voice Group representing a coalition representing the beer and pub industry, Evans said the cost of such claims would run into the billions of pounds, and was something the insurance industry had not reserved for.

“The scale of the [coronavirus] problem would see the cost of such payments easily run into billions of pounds for which the insurance industry has not collected premiums or reserved,” he said. “Such goodwill gestures could therefore only be delivered at risk to insurer solvency and require insurance executives to breach their legal and regulatory responsibilities to do nothing that will endanger the financial safety of the company.”

Evans said that BI policies were simply not designed to cover the types of risk presented by pandemics.

“Business interruption cover is typically built around something specific happening to the physical premises, not something to the whole country,” he said. “Where extensions have been purchased for notifiable diseases, these are typically for a specific set of diseases and require the disease to have infected the premises concerned.

“Such policies are not designed to cover a global viral pandemic of a kind we have not seen in over 100 years in this country and nor were your members charged for such cover.”

Evans added that where businesses are covered, insurers have already committed to paying BI claims promptly.

“Our latest estimate, informed by data from our members to support our response to questions from the Treasury Select Committee, is that £900m will be paid by insurers to businesses for interruption as a result of the Covid-19 crisis as part of an estimated £1.7bn insurance payouts in the UK from ABI members and Lloyd’s of London,” he said.

Insurer Response ‘Deplorable’

Evans was replying to criticism from Gould in which he described the insurance industry as being a ‘notable omission’ from a collaborative response to the pandemic as lockdown conditions continue to damage the hospitality sector.

“Within this context of a national, collaborative effort across our entire supply chain there has been one notable omission – insurance companies,” Gould said. “We had hoped insurers would work with us at this critical time. With one or two exceptions, the collective failure of insurers to step up and meet their obligations has been deeply disappointing.

“The vast majority of our pub sector businesses have taken a policy including business interruption, with a clear expectation that a material disruption to their business through events beyond their control would be covered.”

Gould said that an industry survey had found that only 1% of hospitality businesses, 3% of BII members, and 4% of BBPA member companies have received a “positive response” from their insurer.

“In normal circumstances this would be unacceptable, in this crisis it is frankly deplorable and threatens business survival for thousands of pub businesses,” he added. “We are aware of legal actions pending but in advance of these cases proceeding we would urge the insurance companies’ senior executives to agree to meet with us to discuss and lead a constructive way forward at the earliest possible opportunity.”