Covid-19: The ‘Uninsurable’ Risk
Immediate Government intervention is the only thing to help at this time in terms of insurance.
Despite UK Government announcement on 17th March, the insurance companies are not stepping in to help, and will not do so unless Government intervenes. Businesses urgently need a package in place to offset the fact that vast numbers of insurance providers will simply not pay out.
We need an urgent agreement between UK Government and the Association of British Insurers
Due to Scotland’s devolved powers many of these issues are subject to what the Scottish Government decide. We already are aware that Scottish Government may not pass on all the rates reduction, only allowing 75% reduction, which isn’t in line with the rest of the UK. We should urge the Treasury to encourage a UK approach.
With society as a whole not able to quantifiably have predicted the outbreak of COVID-19, pretty much every Insurance Company has specific exclusions to “Notifiable Diseases” as well as Pandemics. Exclusions for the spread of viruses and other communicable diseases is more absolute than common in commercial property policies. As such, the business interruption elements of those policies, which rely on a peril within the commercial property policy being activated in order to respond, are rendered obsolete. This is known as the Material Damage Proviso. 99% of businesses are not covered by Business Interruption Insurance.
The below link is from the Association of British Insurers who represent the UK Insurance Market as a whole. Their comments are pretty clear and more information is expected to follow from them shortly. Please read.
The spread of viruses and other communicable diseases are excluded, because they are known as ‘uninsurable risks’, i.e. risks that cannot be properly quantified at point of sale of the policy and therefore are written out of the policy by underwriters. Some policies do cover an outbreak of disease within a certain proximity of the Insured premises, but such policies are likely not intended to cover country-wide, or even regional, mandatory lockdown situations. This is because such event would almost certainly cause solvency issues for Insurers which would lead to inflated pricing and fewer Insurers.
There are a few insurance policies that would cover business interruption on the grounds of it being a notifiable disease. COVID-19 became a notifiable disease on 5th March. We encourage the UK Government to insist that there is a relaxation in the mid-term policy wording from the major insurers who have specified notifiable diseases, for 12 months. Thereby, anyone with cover including notifiable diseases in the last 12 months would also be covered by COVID-19.
RSA, which does cover notifiable diseases (including coronavirus) states the following in their policy wording under the Business Interruption Cover: “Closure or restrictions placed on the Premises on the advice or with the approval of the Medical Officer of Health of the Public Authority as a result of a notifiable human disease manifesting itself at the Premises”. An individual business must be ‘shut down’ by an authority or government in order for cover to be attached. However, Government policy states that there is no community testing, so manifesting itself is impossible. Where there is no test, there is no proof and any manifestation is impossible to quantify. The Treasury should insist that their advice not to travel is an acceptable instruction to insurance companies to activate cover for businesses with this level of cover.
Until or in the absence of mandatory closure being enforced, any claim cannot start and cover cannot be attached. Policy wording needs to be relaxed in terms of ‘deniable access’ in order for cover to be able to be activated.
Business Interruption cover normally only covers 1-3 months, with a maximum of £25,000-£50,000 being covered. Government should issue guidance to insurance companies that anyone with Business Interruption cover should be covered with a capped limit.
In 1993, UK insurers in conjunction with the UK Government, set up ‘Pool Re’, a government backed scheme to underwrite losses associated with terrorism-related events. There is now also a ‘Flood Re’. This was to protect industry from what can be, the catastrophic consequences of sudden and unforeseen interruptions to the economy. We should be pushing the relevant groups to address this moving forward but this will be something that may never occur or take a long time for the Government and Insurers to arrange.
In the meantime, the various Premium Finance Houses have been asked if they are willing to defer payments or not. Initial advice is that on a case by case basis this is something they will review.
Chief Executive, Association of Scotland’s Self-Caterers
18th March 2020