Is Business Interruption Insurance outdated? Is it time for change?

The effects Covid-19 has had on the jobs market has been unlike anything we have seen since the 2008 recession, and even then, the problem was a lot more tangible, but this virus follows us in the air – an invisible destroyer. Consequentially, businesses have been forced to close their doors, some indefinitely, unable to cover costs of ongoing bills whilst profits plummet.

In financial areas such as mortgages and car insurance, the Government has set plans in place with banks and policy providers to offer relief, or payment holidays, to those worst affected by the pandemic. And whilst those schemes aren’t useful to everyone, they have undoubtedly helped thousands of people stay afloat over the past four months.

However, companies have had a much harder time, with many claims on business interruption policies being rejected.

Is business interruption insurance a valid policy?

In short, yes. It’s a valid policy that many insurers offer to businesses which will cover times of financial loss, but tensions have begun to fray between business owners and the Financial Conduct Authority (FCA) over this policy during Covid-19.

The FCA has expressed that it doesn’t believe that the current pandemic qualifies as relevant grounds for claims; Christopher Woolard, interim chief executive for the FCA, stated:

“We have been clear that we believe in the majority of cases, business interruption insurance was not purchased to, and is unlikely to, cover the current emergency. But there are also some other policies where firms may consider there is no doubt about wording and decline to pay a claim, but customers may still consider there is genuine uncertainty about whether their policy provides cover.”

Part of the problem is lack of clarity, whether that’s small print or unclear wording, businesses feel that the denial of claims is unjust.

So, where do we go from here?

There needs to be a review

Business interruption insurance needs a swift wholesale review, and potentially even a judicial review. Insurers aren’t currently equipped to pay out in situations such as the one we are facing now, and instead rely on the ‘Act of God’ clause.

But it’s crucial that the FCA recognise, sooner rather than later, that the Government nor the taxpayer can afford another pay out on the scale which we have witnessed over the past 16 weeks. Unfortunately, the risk of a second spike is more than likely, and the UK will not survive if this is the way insurance and financial support is tackled.

Future thinking is critical

Of course, it wouldn’t be possible for insurance schemes to continue as normal if they were to review and change their approach to business interruption policies; premiums would have to be much higher, for example. But if the insurance were mandatory it would spare the economy and would keep hard working, self-employed individuals in business at times where livelihoods and wellbeing depend solely on the continuation of money coming in, even if they have to shut shop.