Coronavirus (COVID-19) and insurers behaving badly …
There has been a lot of press over the past few weeks about the sad state of play with regard to business interruption insurance, and the fact that many small and medium-sized businesses have found themselves unprotected by their insurance for losses caused by the Coronavirus (COVID-19) pandemic.
But it isn't just in the business interruption arena that insurers are playing hardball; Michelmores has witnessed insurers declining cover for policyholders affected by some of the high-profile event cancellations which have been announced in recent weeks. These policyholders have highly-bespoke insurance, covering them for precisely these circumstances, with specific "Communicable Disease" extensions.
So what's going on? Why are insurers stone-walling these customers at a time when they need their insurers' support more than ever?
Event cancellation insurance
Event cancellation insurance is designed to protect organisers from lost revenues or costs and expenses associated with the organisation of an event if the event is cancelled or postponed due to something beyond the organiser's control. Typically, policies are written on a very broad basis, but are subject to lengthy lists of exclusions. Extensions to cover or "write backs" can then be purchased for an additional premium, with "Communicable Disease" extensions being one option.
Whilst many policyholders may choose not to purchase a Communicable Disease extension, a proportion do, and there have been some examples in the press recently. Insurance Insider recently reported that the organisers of the Summer 2020 Olympics in Tokyo had purchased event cancellation insurance with a limit of US$800 million. Similarly, The All England Lawn Tennis Club announced after it cancelled this year's Wimbledon tournament that it had cancellation insurance, with The Times and The Guardian newspapers estimating that the payout under the policy would be in excess of £100 million.
These high-profile losses might provide some insight into why so many smaller, arguably less high-profile businesses, are not experiencing positive responses from insurers with their claims.
The market for this type of insurance is relatively small, with a number of insurers having pulled out over recent years following mounting losses. As a result, it had been suggested initially that this particular market would be hit hard by Coronavirus-related losses. As it is, the market's reaction appears to have been to shield itself by issuing a series of declinatures (formal refusals to accept claims).
Those within the industry are quick to point out that if insurers in this niche market paid out on every event cancellation claim as a result of the Coronavirus (COVID-19) pandemic, the financial impact for affected insurers would be catastrophic. There would likely be significantly reduced capacity going forward and what cover might remain available would, potentially, be prohibitively expensive.
All of this may be true, but it doesn't detract from the central point that policyholders buy insurance to protect themselves against uncertain losses. It is the insurance market's role and responsibility to assess and price that risk, and to pay out when the uncertain does happen. Provided a policyholder has paid the premium set by the insurer, it is the insurer who should bear the financial consequences of a loss, not the policyholder. Insurers cannot simply decline claims because it would be bad for their business.
If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Garbhan Shanks or Harriet Chopra, in Michelmores' Insurance & Reinsurance team.
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This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.