Coronavirus has had a huge impact across the UK economy. Businesses have had to shift to completely new operating models and get staff used to very different ways of working. Events have been cancelled, travel is at a standstill and some enterprises are already facing catastrophic loss. Under such seismic circumstances an insurance policy would normally be a first port of call for businesses seeking funds to rebuild or to cover losses from interruption, for example. So, is the insurance industry about to see a huge boom in business claims?
What kind of insurance is Coronavirus likely to activate?
Although businesses may be currently affected in many different ways there are two principal insurance policies that many may be seeking to rely on. The first is a cancellation policy that could apply, for example, where there is impact as a result of an event such as the Tokyo Olympics or Glastonbury Festival being cancelled. The second is cover for business interruption and this is often particularly relevant to small businesses.
Does a policy ensure cover?
It will depend on the specific wording of the policy itself as to whether a business can make a claim for Coronavirus and whether that claim has a chance of success. Crucial to this is the difference between “definable” and “undefinable” risk – most policies are unlikely to cover the latter. An example of a definable risk is a shop that is heavily damaged inside when the area is hit by flooding. If that business has taken out flood insurance then that damage is likely to be a defined risk that will be covered. An undefinable risk under those circumstances might be the loss of trade if the flooding has caused damage to local transport infrastructure and roads that means that customers can’t get to the shop. This would be an economic impact that is indirect and so undefinable.
Where does this apply to Coronavirus?
Direct economic loss as a result of Coronavirus could be covered under business insurance policies, for example a business that was shut down by the government to stop the spread of the virus. However, many experts believe that a lot of the impact of Coronavirus on business will be indirect – for example a B&B that suffers economic loss because consumers change travel plans. It’s also worth noting that “notifiable disease” clauses (the classification the UK government updated recently) are not standard in insurance contracts. The impact of COVID-19 is potentially an unlikely risk – as opposed to a standard risk - that most insurance policies won’t provide for.
It seems unlikely that the insurance sector will experience a boom in business claims as a result of Coronavirus. A recent report on the insurance industry identified that it’s not common for claims to be successful where they are made for businesses interruption on the basis of infection and event cancellation contracts are often so specific that claims are difficult. So, for now at least, the industry isn’t looking at an explosion in harmful claims.
Stay up-to-date with the latest news by reading the Mandon Software blog.