Insurance sector in the UK feels the heat of the pandemic, faces a £1.2 billion payout claim

While the coronavirus pandemic is creating havoc across all industries in the United Kingdom, the impact on the insurance sector is somewhat mixed. Though the industry has a large payout bills on its shoulder, it seems relatively insignificant when compared to the magnitude of losses being sustained by the businesses in the country.

Since most of the large insurance companies do not cover incidents like pandemic, the liabilities in their books have not increased. However, there are some who do have policies that cover situations like that of a pandemic induced business disruptions. These companies are the ones which are now feeling the heat of payment and are in a deep distress given the magnitude of the claims. In the meantime, the government has also asked the insurance industry to make prompt payments on legitimate claims so that no business goes bust in need of money. Nearly two third of the businesses in the country have temporarily shut their businesses and put majority of their staff under the benefit of the governments’ furlough scheme. Last week, the government after carefully considering the healthcare situation in the country decided to extend the lockdown conditions by three more weeks, ensuing that the losses on account of the lockdown would continue to mount.

The Association of British Insurers (ABI) though terming the amount of £1.2 billion as a working estimate, has stated that the claims are basically of three categories, Business disruption claims £900 million, travel claims £275 million and events claims totaling £25 million.

Regarding the claims made by some businesses on account of losses faced by the pandemic, the association stated that while many would believe that their policies cover losses on account of pandemic, but actually they may not. On this issue, many of the small businesses like pubs and restaurants have come together and decided to institute legal action against erring insurance companies. They claim that certain insurance companies like Hiscox sold policies which stated that the insurer shall payout where the interruption to the business would be on account of restrictions imposed by a public authority following an occurrence of a notifiable human disease. To an ordinary individual, the above explanation would seem absolutely clear about the policy covering the current pandemic situation, and the companies’ refusal to pay sounds like an attempt to un-necessarily complicate the issue or in a labyrinth of legal jargons to avoid payment.

Roger Topping who heads legal firm TopMark Adjusters, which is helping the small and midsized businesses in their claims against the insurance companies, stated that the massive scale of losses that have been incurred because of the pandemic has been prompting many of these insurance companies to look for legal loopholes to avoid making payments. He stated that his clients would be putting in a strong case against the insurers, and that either the insurers pay up or the government should step in to get the claims settled.

The situation although seems unprecedented for the insurance sector, the current payout claims that it is facing are not even close to the insurance premium it collects every year. The impact of losses at this time is being felt the most by the small and medium sized businesses, who are largely dependent on their cash registers. Large companies though are backed by insurance policies, but are mostly secured with their deep pockets and have shown potential to be able to sail through the current choppy weather without much of the help coming in from either the government or insurance companies. The small businesses on the other side face the risk of extinction, and therefore believe that if this is not the situation when their insurance claims should be of help to them, then there may not be any. The critical aspect here, however, is timing, currently the institution of legal action seems to take a lot of time. Should any of the sums do actually become due to these businesses, the payment might take too long to reach out to these businesses, risking their survival. The insurance companies had been asked a few days back by the Bank of England to re-think on their dividend payments for the quarter, the executive bonuses and other such payouts in order to conserve money and meet the claims arising out of the current economic slowdown. The legal advisors to the small businesses, who are instituting legal action against the insurance companies, have also pointed out to the massive legal fees that their clients are bearing to file their claims and given the circumstances, a huge expense like this is being taxed on their clients. They suggest that the country at this times needs an arrangement along the lines that was adopted by the Northern Ireland government for claims arising out of riots and flood and have also been witnessed in Northern Ireland at the height of its troubles, helping settle a significant number of claims in that country.

This is not the first time the insurance sector in the country is faced with a series of claims. Previously, this year also the country had witnessed massive floods which had caused significant damages to business and property, the claims of which are still laying heavy on the shoulders of the insurance sector. Though a majority of the industry is not exposed to the any claims arising out of the pandemic, but for the few who had offered such policies, the situation might get murkier once they reach courts.

The British government has gone all out to protect the businesses in the country and the jobs of the millions of people amid coronavirus crisis. The amount of money that the government is spending to protect these businesses and workmen is massive compared to the claims that the insurance firms admit. The market believes that it would be prudent at this stage for the government to step in and play a part so that all genuine claims get paid up as soon as possible while also ensuring that the insurance companies are well protected.