Insurance has helped business individuals in tough times to spread contingent risks across a large group of policyholders. The system has worked well for centuries allowing insureds to get back on their feet following an unforeseen catastrophic event.

For years organizations and businesses have relied on business interruption insurance.

Business interruption insurance (BI) helps replace lost income and pay for extra expenses when a business is affected by a covered peril. The key word being: “the covered peril”. And more often than not BI polices include “direct physical loss or damage” as the trigger. COVID-19 related curfews and lockdowns and travel bans may bring business to a standstill but they don’t count as reasonable physical damage. So, as far as the insurer’s concerned, it’s not their problem.

Would an insurer pay for something that was not covered?

Lloyd’s Chairman Bruce Carnegie-Brown speaking to the Financial Times: “Fundamentally the insurance industry relies on contracts,” he said. “We pay out from the premiums we collect, and if we haven’t collected premiums for covers like coronavirus, it would put the industry in jeopardy to be paying claims for those risks”, adding “We will work very hard to try to make sure that customers benefit from the policies that they’ve got but it will be difficult to pay out if customers have not specifically bought protection.”

Insurers hold that pandemic diseases are not covered in business interruption policies, to the insureds disappointment and furor over catastrophic losses.

However, in the US the viewpoint is that insurance companies should consider exhibiting good will and reimburse claims. Members of the House of Representatives from both parties insist that insurance companies should cover losses that businesses have suffered due to COVID-19 restrictions to trade and traffic. In a letter to four insurance industry trade organizations they requested that insurers retroactively recognize financial losses relating to COVID-19 as part of policyholders’ business interruption coverage. The industry responded that standard commercial insurance policies offer coverage and protection against a wide range of risks and threats and are vetted and approved by state regulators. Business interruption policies do not, and were not designed to, provide coverage against communicable diseases such as COVID-19.

Members of Parliament in UK followed suit with their question whether the industry would be willing to show some leniency towards business who were forced to suspend their operations.

According to Mr Carnegie-Brown Lloyd’s had identified at least 14 different types of policy which may be triggered by corona claims including event cancellation, travel insurance, directors’ and officers’ liability, health, and product liability, among others. He said it was too early to put a figure on the size of potential claims, but he is of the opinion that it might be a “large loss event” for the market, even in the many billions of dollars.

There used to be better days.

Insurers, at least some of them, used to be more magnanimous, see things through a wider lens during past major disease outbreaks and public health emergencies. At times when a large scale pandemic was hardly conceivable.

Then Sars and Ebola made clear to the industry where the line should be drawn in regard to going by the book and following policies to the letter.

By the time insurance policies are renewed insurers tighten terms and make plain and clear that COVID-19 is not covered.

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