In an open letter to SME signatories, the ABI director general says state support is the only way to make pandemic insurance affordable for small businesses

The ABI has responded to an open letter from small business owners and their representatives, emphasising that while “the insurance sector takes no pleasure in declining claims”, business interruption (BI) policies “are not designed to cover an unspecified global, viral pandemic that is not present on the premises”.

On 9 May, the Covid Claims Group – led by James Ollerenshaw – addressed the ABI in an open letter published in The Times, outlining key concerns for the SME sector regarding insurance provision and rejected BI claims linked to the coronavirus pandemic.

In his response on 22 May, the ABI’s director general Huw Evans said: “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.”

Evans explained that SMEs were not being persecuted by insurers as a result of the current Covid-19 crisis.

“With regard to SME purchase of non-damage business interruption extensions, I can assure you that each claim is being examined on a case by case basis by ABI members,” he said. “Where the policy wording allows for a claim to be paid, it will be - hence the £900m our members expect to pay swiftly and with interim payments wherever possible.

“This will be on top of the average of £7.8bn 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.”

Hardened stance

Evans further disagreed with the Covid Claims Group’s accusation that the ABI’s stance has “hardened”.

He said the trade association has “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”.

He continued: “Such add-on policies are not designed to cover a global, viral pandemic. Nor were these policies sold to customers as being cover against this type of incident. The proof of this rests in the prices charged to SMEs; providing insurance coverage specifically against pandemics is a specialist and expensive form of insurance typically sold in the Lloyd’s market.

“If insurers were including this type of risk as standard in the policies you and your co-signatories had bought, you would have been charged many multiples of the price you paid, given the huge liabilities involved in shutting businesses for indefinite periods.”

Evans also explained why the insurance sector cannot pay all BI claims related to coronavirus, regardless of whether policyholders are covered or not.

He said: “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. I can understand why you may assume this, but this is not the case.

“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 imperil the ability of insurers to pay the claims of other policyholders.

“This is not an issue of insurers failing to show flexibility. Insurers have a fundamental duty to their policyholders to ensure they have adequate reserves and must therefore ensure that the risks they cover are included within the premium originally charged before paying a claim.”

On one point, however, Evans agreed with Ollerenshaw – the need to find a better solution in case of future pandemics.

“For such insurance to be affordable to SMEs, there would likely require significant levels of state support,” Evans added. “But we are committed to playing our part to find a better future position than we have at the moment.”