The director general admitted that communications to company owners regarding their business interruption coverage was ‘too harsh and too insensitive’ early on in the Covid-19 pandemic, and that cyber insurance is the next coverage insurers and brokers need to keep an eye on

In the wake of the Supreme Court’s judgment on the FCA’s test case surrounding the interpretation of business interruption (BI) policy wordings when applied to Covid-19-linked claims, the ABI’s director general Huw Evans said that insurers “have to learn the lessons” and that “doing nothing is not an option”.

Speaking at the ABI’s annual conference, this year held virtually on 23 February, Evans told session chair Aasmah Mir, a broadcaster at Times Radio, that the insurance sector’s reputation had suffered as a result of the legal proceedings initiated by the FCA last April.

He said: “You always take a hit when there is an uninsured event. That is a golden rule and it doesn’t really matter to a certain extent who’s fault it is because people suffer as a consequence of not being insured.

“We always have to take stock after something like this has happened. We’ve seen it in other cases as well, in [a] smaller scale, with flooding - particularly before we had Flood Re, where people couldn’t afford insurance cover and they were not covered.

“The insurance industry took the reputational hit then. We did something about that, we can do something about this going forward. We have to learn the lessons. Doing nothing is not an option.”

Too harsh and insensitive

Agreeing that the test case “shaped a large chunk” of last year, Evans added that he doesn’t “regret the court case” however.

“It was a really difficult and challenging court case at times, but it did provide the absolute clarity that was needed in law for what was an unprecedented situation,” he explained.

“We hadn’t had a pandemic like this for 100 years and we’d never had a national lockdown that had followed from a pandemic. So, [there] was a genuine uncertainty about how various types of insurance contracts covered this unprecedented situation.”

The proceedings also acted as a learning curve for both Evans and the ABI, especially in terms of communicating to end customers.

Initially, a lot of the trade association’s messaging was “coming across as too harsh and too insensitive to some business owners who were understandably very frightened about the future of their business”, Evans noted.

“We moved to correct some of that, but we did have a job to clarify - the fact that 95% of business interruption policies don’t have any coverage and then there was basically a dispute about the 5%,” he added.

In terms of lessons learned for the future, Evans said: “It’s got to be around the expectation gap and about greater clarity about what is in and what is out.”

He continued: “We cannot go through another set of these experiences, whether it’s on business interruption or some other type of insurance over the next few years, where large numbers of policyholders are unclear about what’s in and what’s out.

“People are very sensible – they understand insurance policies cover some things, but not all things. We, together with our partners in the broker market and everyone who sells insurance and has conversations with customers about what’s in and what’s out, have to get better at that.”

Is cyber the next BI?

Hazarding a guess at other potentially problematic gaps in the market, Evans identified cyber insurance as having “certain parallels” to 2020’s BI debate.

“If we’re going to look at any other single area of the market where we would be most worried there would be a repeat scenario, I think cyber is probably the most obvious area because it shares many of the similar characteristics,” he said.

“It’s an area that is typically underinsured – most businesses either don’t have cyber insurance at all or they don’t have sufficient cyber insurance. A major cyber attack can disproportionately hit small businesses that don’t have sophisticated defence systems and can’t afford to invest in them.”

He added that the ABI has set up a working group that is exploring potential public-private partnerships moving forward; cyber insurance is one area being considered in this remit.

“In the meantime, there’s a really important job for our industry and for our industry’s brokers to sell as much cyber insurance to customers as possible and to explain the risks that they face and encourage them to buy the cover,” Evans urged.