“Your letter sets out some serious charges; that insurers have failed customers at their moment of need, that they have treated SMEs differently from other customers, and that the ABI has hardened its position as the crisis developed.”
Those were the words of Association of British Insurers (ABI) director general Huw Evans when the trade body issued its response to the open letter sent by Covid Claims Group founder James Ollerenshaw on behalf of small business owners whose coronavirus-related business interruption (BI) claims have been denied.
Ollerenshaw himself owns London-based hair salon The Drawing Room, which the business co-founder described as having no income during the pandemic but at the same time is incurring “massive” debts, according to a report by The Times. “Those of us that paid for extended policies are justified in expecting providers to honour them,” wrote Ollerenshaw, whose camp pointed to a supposed “abrogation of responsibility” by insurance companies.
In ABI’s reply, Evans declared: “Far from failing our customers, insurers in the UK expect to pay at least £1.7 billion in claims as a result of COVID-19. This includes over £900 million to businesses and £275 million to people claiming on travel insurance.
“The international insurance market Lloyd’s of London has said it expects this event globally to have more impact on the financial position of insurers than the 9/11 terrorist attacks or the 2005 hurricanes, with the global and systemic nature of this crisis challenging our industry in a way we have never seen before.”
According to the director general, the industry continues to do all it can to support affected individuals and businesses by paying a large volume of claims not only in the UK and but also internationally.
“With regard to SME purchase of non-damage business interruption extensions,” Evans told Ollerenshaw, “I can assure you that each claim is being examined on a case-by-case basis by ABI members. Where the policy wording allows for a claim to be paid, it will be – hence the £900 million our members expect to pay swiftly and with interim payments wherever possible.
“This will be on top of the average of £7.8 billion paid by insurers each year to SMEs and larger businesses for day-to-day risks such as fire, flooding, and employee accidents. In deciding whether to pay a claim, insurers do not make a distinction between SMEs and larger businesses; the wording of the policy contract is the key determinant, not the size of the business.”
In addition, the ABI disagreed with the assertion that the trade body has hardened its stance as the situation unfolded.
Evans noted: “We have explained consistently since the beginning of the COVID-19 crisis that most business interruption policies do not provide any cover for human infectious diseases but that a minority of customers choose to buy add-on cover that provides insurance against specific notifiable diseases that affect their premises.
“Such add-on policies are not designed to cover a global, viral pandemic. These policies typically specify a list of notifiable diseases covered and/or relate to an outbreak on or near the premises in question.”
As for the issue of flexibility, the ABI official went on to shed light as to why policy wordings cannot be disregarded.
“Your wider point is that irrespective of the policy wording, insurers should pay claims and that if only a minority of businesses have bought extensions to BI coverage, this should be affordable,” stated Evans. “I can understand why you may assume this, but I would like to explain why this is not the case.
“Insurers are required under their legal and regulatory responsibilities to do nothing which endangers the solvency of the insurance company or involves reckless stewardship of its finances, as well as having a responsibility for the 300,000 people our sector employs across the whole of the UK,” he explained.
“In these unprecedented economic circumstances, paying tens of thousands of claims for which insurers have not charged a premium would cost many billions of pounds, which could both imperil the ability of insurers to pay the claims of other policyholders.”
Evans said it isn’t a case of insurers failing to show flexibility but having a fundamental duty to ensure they have adequate reserves and that the risks they cover are included within the premium originally charged before paying a claim.
In an earlier development, the ABI responded to the open letter from One Voice Group – a coalition comprising the British Beer & Pub Association, UK Hospitality, British Institute of Innkeeping, and the Society of Independent Brewers. Collectively they represent 50,000 pub businesses and 2,000 brewers.
“I can, of course, appreciate the desire to see insurers make compensation payments outside of policy terms, especially given the very difficult situation facing the hospitality sector,” wrote Evans in his similar reply to One Voice Group chairman Stephen Gould. “However, the scale of the 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.
“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.”