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Business Insurance

The spread of Coronavirus is unprecedented in modern times, and insurers understand this is an incredibly difficult time for families and businesses.

No country in the world is able to provide widespread pandemic insurance, and the UK is no exception. For this type of cover to be available and affordable, would require a very significant subsidy from the government - given the scale of business disruption we have seen with the COVID-19 pandemic. Instead, standard commercial insurance policies – the type the vast majority of businesses purchase – provide cover against a wide range of day to day risks including damage caused by fire, flood, theft and accidents involving employees.

Every day, insurers action claims of £22m to firms through business insurance policies, supporting millions of firms across the UK each year. As recognised by the industry regulator, in a letter to insurance CEOs, the FCA said: “most policies have basic cover” and “do not cover pandemics, and insurers have no obligation to pay out in relation to the COVID-19 pandemic”.

In the instance where there are valid claims, ABI members are working tirelessly to support their customers, through the swift payment of valid claims, interim payments to their customers, and providing clear and quick answers to their questions. Insurers have been managing an unprecedented level of activity, with some insurers reporting a 200% rise in call volumes. 

An initial, working estimate in the ABI’s response to the Treasury Select Committee indicates that its members can expect to pay out over £1.2 billion in claims, £900 million of this relates to business interruption claims. While most businesses will not have purchased insurance to cover against COVID-19, for those that have valid claims, some are expected to be substantial. 

On valid claims, only a very small number of businesses choose to buy any form of cover that includes business interruption due to a notifiable or infectious disease. Usually, these extensions list the very specific diseases which are covered, not any notifiable disease that may emerge, such as COVID-19. An even smaller number of these businesses will have cover where the notifiable or infectious disease is unspecified, potentially enabling them to claim for the impact of the COVID-19 pandemic.

However, such policies often only apply when the disease is present at the premises. These policies will cover the interruption to trade caused where business premises have been infected by an illness such as Legionnaires' disease or Norovirus and where the building needs to be closed and cleaned to deal with the specific icident.

ABI Principles for Handling Business Interruption Claims related to COVID-19

While the majority of customers will not have purchased cover for the effects of COVID-19 on their business, where cover does apply, ABI members have a clear set of principles for the handling of these claims to reassure customers at this uncertain time, clarifying and reinforcing existing best practice in claims handling. Business interruption claims can, in general, be complex to assess and determine quantification. 

They often require a clear understanding of the business and how it was operating before the interruption, however, insurers are experienced in dealing with these issues and in supporting their customers through this process.

  1. Business interruption claims can require specialist expertise, so insurers will ensure clear, accurate and timely communication with customers when dealing with these claims.
  2. Insurers will support their customers throughout the claims process, with dedicated teams of experts and appropriate resources to manage the volume and complexity of COVID-19 business interruption claims.
  3. Insurers will clearly explain to their customers what information is needed to enable the swift assessment and quantification of their business interruption claim.
  4. Insurers recognise that cash flow is critical for the survival of businesses at this time. Where a customer’s policy covers certain losses for business interruption as a result of COVID-19, insurers will pay the claim as soon as they receive evidence to support this.
  5. Insurers will seek, where possible, to make interim or part payments where claims are ongoing.
  6. These interim or part payments will flow from the claim and evidence presented, helping to relieve some of the more immediate pressures that customers are facing
  7. Where an insurer receives evidence in support of a valid claim for business interruption that clearly shows that the policy limit for the claim will be exceeded, they will make payment to the customer up to the maximum policy limit for that claim without undue delay.
  8. Insurers will promote a culture of providing timely support to their customers, with the involvement and oversight of senior or executive level representatives where appropriate, enabling business customers with cover to put plans in place to deal as best they can with the most pressing issues.
  9. Where an insurer reaches a decision not to pay a claim, they will notify their customer promptly and set out their reasons in full in plain English. This should include details of the insurer’s complaints procedure.
  10. Where customers are not satisfied, their complaints will be dealt with by insurers promptly and be considered by a person or persons with expertise in the subject matter who was not involved in the original decision. Where a firm is unable to resolve a complaint, customers will be given clear information about their option to take their complaint to the Financial Ombudsman Service and/or seek independent legal advice.

Business Insurance Q&A

How does business insurance work?

  • Commercial insurance is generally an advised sale where businesses make informed choices about the type of cover they need. An adviser or broker will work with the business and advise on the appropriate insurance to suit its needs.
  • A very small number of businesses may have a policy in place that specifically provides cover for contingency business interruption arising from notifiable diseases, such as Coronavirus, where its premises have been contaminated. However, as set out by the FCA, this cover is unlikely to cover pandemics, and insurers, therefore, have no obligation to payout.
  • Insurance policies are tailored to the needs of the individual business. It is not a one size fits all approach, as the insurance needs of no two businesses are the same.
  • Standard commercial insurance policies provide cover against a wide range of risks. This can include damage caused by fire, flood, losses by theft, accidents involving employees and the need for temporary trading premises in certain circumstances (following damage that makes it impossible to continue trading at the existing premises, e.g. due to a severe flood or fire).
  • Insurers are supporting their policyholders through this difficult time, and significant effort is being made to pay valid claims as quickly as possible, deal with customers' queries and insurers are working to be as flexible as possible.

Business Interruption Insurance

What is business interruption insurance?

  • Business interruption insurance covers a business for loss of income during periods when they cannot carry out business as usual due to damage caused by a specific set of perils that will be specified in the policy. It aims to replace certain losses sustained by the business during the period of the disruption. These perils can include damage to the premises caused by incidents such as a fire, flooding or other physical damage. 
  • The insurance may compensate the business for any increased running costs and/or shortfall in profits as the result of the event, up to a certain limit that is set out in the policy.

How do businesses purchase business interruption cover?

Business interruption insurance is usually offered as an optional extra to business insurance packages, which combine a number of different policies under one premium. It can also be offered as an optional extra to buildings and contents insurance policies in some cases. Most businesses purchase a package of insurance from a broker who will work with them to ensure that they have the appropriate cover for their needs.

What do business interruption policies generally cover?

  • Most policies will provide cover if the premises or equipment are damaged by a named peril, such as a fire, flood or storm, and also often for the breakdown of essential equipment. 
  • Some policies may also cover business interruption as a result of people not being able to access the business due to specific circumstances (such as the police cordoning off an area due to an event such as terrorism, a fire, or the risk of a collapsing building etc.). In many cases, this is known as 'restricted access' cover or 'non-damage business interruption' cover and is usually an add on to a standard policy that can cost more.

Does standard business interruption insurance provide cover for businesses who are not able to operate due to the effects of COVID-19?

Standard business insurance policies are designed and priced to cover standard risks. They are therefore very unlikely to provide cover for the effects of global pandemics, and insurers would have no obligation to pay out claims in relation to the COVID-19 pandemic. This includes forced closure by the authorities. Businesses may have chosen to purchase cover that will specifically provide for business interruption arising from notifiable or infectious diseases. For specific notifiable disease extensions, cover may apply if other policy conditions are met. However, this type of extension is not commonly included as standard. Furthermore, the likely costs to businesses of cover that would consist of more unusual risks – such as those posed by new diseases – would be prohibitive.

Does a 'notifiable disease' extension to business interruption cover my business for COVID-19?

  • Most notifiable disease extensions cover specific diseases that will be named in the cover. These are diseases that are well known and understood. If the policy does not allow for all human infectious diseases, then cover is unlikely to apply.
  • Some notifiable disease extensions are more general and do not specify certain diseases. In these cases, business interruption cover for COVID-19 may apply if COVID-19 is present at the premises and all policy conditions are met.
  • If you are unsure about what your policy covers your business for, check with the broker you purchased the policy from or your insurer if you purchased it directly.

Are there any other extensions to business interruption that may provide cover?

  • Some coverage may exist if the business has purchased a 'non-damage, denial of access' extension to a business interruption policy. Again, purchase of these extensions tends to be rare, and this is not generally covered under standard business interruption policies.
  • Generally, 'denial of access' cover applies to cordoned off areas and the loss of trade resulting from a denial of access to the premises (e.g. as a result of a police cordon). If a business is forced to close or is told to shut by an appropriate authority or is cordoned off, this could trigger a claim under a 'non-damage, denial of access' business interruption extension if the infectious disease cover is unspecified or if it includes COVID-19.

Unoccupied Business Premises?

How are insurers supporting unoccupied premises where businesses are temporarily closed?

Given the Government guidance to avoid non-essential travel during the lockdown period, commercial insurers are keen to take practical steps to support its customers. If a business has to temporarily close because of COVID-19, insurers are being flexible with the following:

  • Where customers are taking the appropriate steps to mitigate the risk of damage to the property while unoccupied, many insurers will be flexible around the period of un-occupancy specified in the policy document. 
  • Some insurers have also waived requirements for their business customers to immediately notify them of their unoccupied status, (depending on the individual business circumstances), to allow customers to concentrate on managing their businesses. This will also allow insurers call centres to focus on managing the significant number of insurance claims being processed.
  • Policies will often include conditions that are intended to ensure good practice in protecting buildings from damage caused by the risk of fire, theft and escape of water, which are often increased when a building is empty. It is important that business owners continue to follow risk management advice and ensure they understand what steps they need to take.

How should I go about checking on my unoccupied premises over the lockdown period?

  • Most insurers have also waived the requirement for individuals to check on their temporarily unoccupied business premises regularlyif they are unable to do so in line with Government guidance on essential travel during the lockdown period. Some insurers, however, will require cases to be referred before agreeing as this relaxation may not be appropriate for higher hazard risks. This is as long as individuals have been able to follow the risk management advice and have taken reasonable endeavours such as ensuring the premises are suitably secure.
  • However, it is worth being aware that unoccupied premises present an increased risk of damage for many properties. Particularly those larger or higher risk commercial premises (including but not limited to warehouses, those with hazardous materials, those with high target stock values and significant electronic equipment, those with significant renovations impacting the security) they will, therefore, require continued monitoring. Those with larger or higher risk premises should discuss the appropriate arrangements for the property being unoccupied with their insurer, who will work with you to ensure suitable action is taken. Insurers will try and be as flexible as possible in these circumstances.
  • Many activities are still allowed to be completed, as set out by the Security Industry Authority. They clarify that “Roles essential to supporting law and order, with the potential to reduce demand on policing, also meet the critical worker definition. This would include, amongst other areas, the guarding of empty or closed commercial, retail or office premises; the monitoring of similar through CCTV or other remote means; and the provision of alarm response centres including mobile units….. If a physical presence is required, then you should seek to minimise the number of staff deployed to the lowest safe level and ensure social distancing is applied".
  • If there are any specific requirements as part of your insurance contract that you are unable or unlikely to be able to comply with, such as on-site security, speak to your insurer or insurance advisor/broker.

Do I need to continue to make regular visits to my unoccupied business premises if it is against government guidance?

  • Given the Government guidance to avoid non-essential travel during the lockdown period, commercial insurers are keen to take practical steps to support their customers. Therefore most insurers have waived the requirement for individuals to check on their temporarily unoccupied SME business premises regularly if they are unable to do so.
  • This is as long as business owners have followed the risk management advice provided by their insurer and have taken reasonable endeavours to ensure the premises are suitably secure.  Some insurers will require cases to be referred before agreeing, as this relaxation may not be appropriate for higher hazard risks.
  • It is worth being aware that unoccupied premises present an increased risk of damage, and for those larger or higher risk commercial premises (including but not limited to warehouses, those with hazardous materials, those with high target stock values and significant electronic equipment, those with significant renovations impacting the security) they will, therefore, require continued monitoring.  Those with larger or higher risk premises should discuss the appropriate arrangements for the property being unoccupied with their insurer, who will work with you to ensure suitable action is taken. Insurers will try and be as flexible as possible in these circumstances.
  • Many activities are still allowed to be completed, as set out by the Security Industry Authority, who clarified that "Roles essential to supporting law and order, with the potential to reduce demand on policing, also meet the critical worker definition. This would include, amongst other areas, the guarding of empty or closed commercial, retail or office premises; the monitoring of similar through CCTV or other remote means; and the provision of alarm response centres including mobile units. If a physical presence is required, then you should seek to minimise the number of staff deployed to the lowest safe level and ensure social distancing is applied."

Other Business Issues:

If my business isn't able to operate because of COVID-19, should I just cancel my insurance policy?

  • Business insurance helps to protect business owners and independent professionals against everyday risks, such as accidents in the workplace and associated public liability, stock or premises damage, legal costs and cyber-attacks. There are also some types of insurance that a business is legally obliged to have, such as employer's liability and commercial motor insurance.
  • Even in a time when a business may be unable to operate as usual due to the impacts of COVID-19, it's important that businesses remain covered for standard risks, many of which may be more likely when the property is unoccupied, such as vandalism of the property, theft of stock or equipment, or even loss of information or damage to IT systems and networks. 
  • Every day insurers pay out £22 million to help firms cope with these unwelcome events. It would be a terrible outcome for a business without adequate insurance cover to experience significant damage while temporarily closed, which would delay their ability to get back up and running once permitted to do so. 

Do cyber insurance policies cover working from home/remote working and any particular cyber incidents which may arise from this situation either through the actions of individuals, e.g. phishing emails, inadvertent data leak?

  • In general, the cover provided by cyber insurance policies will be unaffected, and policies will cover working from home/remote working. Cyber incidents such as phishing emails or inadvertent data leak will continue to be covered as normal. Some insurers may require their policyholders to notify them, so it is prudent to contact your insurance provider directly to check your cyber insurance cover is still adequate.
  • Businesses should continue to follow the advice produced by the National Cyber Security Centreon secure home working to ensure cybersecurity remains at a high level and IT systems are protected during these difficult times.