14th May 2020
Copy of Open Letter sent to the Association of British Insurers. 11th May 2020.
Authored by James Ollerenshaw, Director of The Drawing Room and Founder of Covid Claims Group.
Dear Mr. Evans (Director General, Association of British Insurers)
The UK insurance industry is failing small and medium businesses (SMEs) at their moment of greatest need. Denying claims for business interruption due to COVID-19 will directly result in the collapse of thousands of companies that might otherwise have survived this crisis. Thousands more jobs will be needlessly lost and the burden on the British taxpayer will increase.
The Association of British Insurers (ABI) and its member firms have shown that flexibility can be your response to this pandemic. You have announced extra support for motor, household and travel insurance policyholders. This commendable approach has helped to mobilise community volunteers, reassured millions working from home, and handed an emergency healthcare lifeline to those stuck abroad. Unfortunately, you have determined to take a harsh and intransigent approach with the SMEs that form the backbone of our economy.
The ABI’s abrogation of responsibility has come as a considerable shock to SMEs that paid extra for extended business interruption (BI) cover. In the early stages of the COVID-19 crisis, well before the current lockdown, thousands of business owners like us examined our insurance documents. We were relieved to see that we should be covered. Our seemingly prudent decision to pay higher premiums gave us hope that we could avoid redundancies, pay our bills, and plan for our eventual recovery.
We understood that claims would depend on certain criteria being met. Most policies did not specifically rule in or out a pandemic, but terms typically included a formal instruction to close business premises by an authorised public body, COVID-19 being listed as an officially Notifiable Disease, or the declaration of a Public Authority Incident. The Government listed COVID-19 as a Notifiable Disease on 5 March. On 23 March it ordered most businesses premises to close. A speech by the Chancellor on 17 March made clear that firms with insurance for pandemics would be able to make a claim. On 19 March, the Financial Conduct Authority (FCA) told insurers to treat customers fairly and consider payments on claims they might usually reject. The actions taken by the Government reassured us that policy criteria were being fulfilled. The announcement by the FCA gave us confidence that the response of insurers would be accommodating.
As these events unfolded, your industry closed ranks. On 18 March, the ABI released a statement that narrowed its stance on BI cover. On 27 March, in a formal response to the Rt Hon Mel Stride MP, Chair of the Treasury Select Committee, you noted that only a minority of businesses held appropriate cover and highlighted comments by Sir Charles Bean, an economist, that “the state is always the insurer of last resort”. On 30 March, you published an article that implied the volume of claims would be unaffordable for your members, contradicting earlier ABI announcements that few businesses held relevant cover. Meanwhile, your members released pre-emptive statements discouraging customers from making BI claims related to COVID-19.
The position of the ABI and its members is callous and wrong. Failure to recognise COVID-19 as a Notifiable Disease is negligent. Denying that it is a Public Authority Incident is preposterous. Your members have demonstrated through their actions with other customers that reason and flexibility can prevail. Why not with SMEs?
There is no suggestion that insurers should make pay outs to businesses with only basic BI cover. However, those of us that paid for extended BI policies are justified in expecting providers to honour them. It is hard to understand why this would not be affordable for your industry: BI payments are capped, and by your own admission they will be few in number.
You have stated that insurers are willing to work with government and do more to protect the world from future pandemic risks. Partnerships between the industry and government have enabled policies to be written for events with widespread impact, including flooding, terrorism and earthquakes. Taking a similar approach with future pandemics is sensible and to be welcomed; it does nothing to remedy the present situation. British insurers need to show good faith by changing their approach to extended BI cover now.
Since the ABI and its members seem determined to resist, SMEs are now hoping that the FCA will obtain a court declaration to bring much needed clarity and certainty. We trust its action will encompass all extended BI policyholders, eliminate injustices such as insurers determining whether to recognise Notifiable Diseases or Public Incidents at their convenience, and lay the path for swift processing of claims and pay outs.
We also hope that the ABI may yet pre-empt the judgement of the court, make a resolution to honour extended BI claims, and so restore the integrity and reputation of your industry. This would be a more positive outcome for SMEs and your members. It would ensure the survival of many threatened businesses, reduce avoidable damage to our economy, and prove to buyers of business insurance products that the ABI and its members can be trusted to stand by policyholders.