Next month, the UK's financial regulator will be taking insurance companies to the High Court to answer a very important question – who's picking up the bill for coronavirus. What the answer will be, will have ramifications for businesses up and down the country.
What's the case?
Insurance companies have paid out all kinds of claims from travel to events. However, the FCA (Financial Conduct Authority) would like to know whether business interruption policies cover the losses that lockdown has caused.
Similar battles are being fought in Europe and the USA, and businesses across the globe are arguing that their business interruption policies cover the economic damage they have suffered from the pandemic.
Naturally, insurers are arguing that these policies do not cover events such as pandemics and that they are focused on the property themselves. Typical issues would be floods, fire and other physical damage.
In fact they argue, infectious diseases are explicitly excluded from most policies. If these policies were to include infectious diseases, the costs of them would have been a lot higher. Insurers say that they foresaw the risk of a pandemic and managed this risk appropriately.
Should insurers pay anyway?
Many of the biggest insurance companies are aware that fighting tooth and nail against small businesses doesn't look particularity good in the eyes of the British public, and some are paying out anyway to avoid court. Many of those working in insurance are suggesting negotiation rather than litigation, and that court should be the last resort.
Even if they are completely in the right, many policy holders may be so angry that they leave anyway, and insurance companies could lose out in the long run. Businesses will also be a lot more circumspect when they take out any insurance policies.
However many companies have been steadfast and issued blanket refusals to pay out. Policies often have standardised wording, and paying out on one claim will often mean paying out on all the other claims.
What are the stakes?
The stakes are very high. The insurer Zurich for example, are expecting to pay $750 million in coronavirus claims. If the High Court declares that these policies do provide cover, they expect this figure to be $950 million.
For some small businesses, their survival is at stake. A payout may be the only thing that will keep some restaurants, bars and cinemas in operation. Although even if successful, the next question will be, how much is owed, and this will take another few months.
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