ABI: Significant state support needed for more affordable BI coverage

Association of British Insurers (ABI) director general Huw Evans has acknowledged that “significant levels of state support” will be required for more affordable business interruption insurance coverage to be granted to small- and medium-sized enterprises (SMEs) in the event of a future pandemic.

Evans made the comment in his response to an open letter from a coalition of almost 700 small business owners and representatives, published in The Times, that accused the insurance industry of an “abrogation of responsibility” in failing to meet Covid-19 claims.

The Covid Claims Group warned that “thousands of companies that might otherwise have survived” the pandemic face collapse if insurers do not honour business interruption policies.

The insurance industry has faced widespread criticism for refusing Covid-19 claims, with trade groups, insurers and even the Financial Conduct Authority (FCA) admitting that the majority of policies do not cover pandemics. The FCA is pursuing a test case through the High Court to gain legal clarity on the issue.

In his response to the Covid Claims Group, Evans said that “paying tens of thousands of claims for which insurers have not charged a premium would cost many billions of pounds”.

Protection afforded by add-on business interruption policies cover particular risks, such as specific infectious disease causing a business to close and the subsequent loss of earnings. “They are not designed to cover an unspecified global, viral pandemic that is not present on the premises,” Evans said. “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.”

He continued: “Where I do agree with you is on the need to find better solutions so insurance coverage can be more widespread in the event of a future pandemic. For such insurance to be affordable to SMEs, there would likely require significant levels of state support. But we are committed to playing our part to find a better future position than we have at the moment.”

The ABI also recently responded to a letter from a beer and pub industry coalition, with Evans pointing out that insurers in the UK expect to pay at least £1.7 billion in claims as a result of Covid-19.

Mark Dugdale