Millions of businesses have taken out small business interruption insurance, but will your policy pay out if you have to shut down because of coronavirus?
Business interruption policies are usually taken out to cover acts of God such as flooding and fire. Insurance policies such as these physical damage at a property that results in the small business being unable to trade.
And only a small minority of larger business owners may have previously arranged an additional clause covering them in the event of a pandemic.
>Further reading: What kind of insurance does your small business require?
However, because Covid-19 was only officially named by government on March 5 as a “notifiable disease.” This means “registered medical practitioners” (RMPs) have a legal duty notify their local council or local health protection team of suspected cases of certain infectious diseases. This is one of the key criteria which insurance companies need to know before they pay out – any policies taken out before then will not cover coronavirus.
French insurer Axa has told customers that its general business interruption insurance does not cover losses caused by Covid-19 as it only protects against diseases specifically named in its policies. Covid-19 was not specified as it is a brand-new illness.
And Direct Line told Small Business that it too doesn’t provide cover for losses or interruption caused by coronavirus. It advises small business customers with questions about legal obligations in commercial insurance policies to contact its legal advice helpline.
But the Forum of Private Business called on insurers to at least honour claims for companies who had notifiable disease cover.
What if government forces my small business to close?
Insurers say that business interruption policies would not apply even if the government orders lockdown of an entire city, including restaurants and any other venue.
The Association of British Insurers (AIB) was unequivocal.
“Irrespective of whether or not the government orders closure of a business, the vast majority of firms won’t have purchased cover that will enable them to claim on their insurance to compensate for their business being closed by the coronavirus,” the AIB said in a statement.
“Standard business interruption cover – the type the majority of businesses purchase – does not include forced closure by authorities as it is intended to respond to physical damage at the property which results in the business being unable to trade.
“A small minority of typically larger firms might have purchased an extension to their cover for closure due to any infectious disease. In this instance, an enforced closure could help them make their claim, but this will depend on the precise nature of the cover they have purchased.”
Prime minister Boris Johnson has said insurers have been asked to “step up to the plate” to help companies, but the industry’s view is that the sector has not been writing policies or collecting premiums to cover coronavirus, so it could not now be expected to pay out.
Instead, insurers have called on government to act as an “insurer of last resort” to help companies facing ruin.