We've provided this information from the Association of British Insurers to assist in the understanding of business insurance cover during this difficult period, however in all cases you speak to your broker or insurer to clarify the terms of your business insurance policy.
The spread of Coronavirus is unprecedented in modern times and we understand this is an incredibly difficult time for families and businesses.
Standard commercial insurance policies – the type the vast majority of businesses purchase – provide cover against a wide range of day to day risks including damage caused by fire, flood, theft and accidents involving employees.
Insurers action claims of £22m each day to firms through these policies, supporting millions of businesses across the UK each year.
Only a very small number of businesses choose to buy any form of cover that includes local closure due to an infectious disease.
An even smaller number will have cover enabling them to potentially claim on their insurance for the presence or impact of the Coronavirus pandemic. The Government’s clarification this week will help some of these policyholders claim if the other terms and conditions of the policy are met.
We strongly recommend that every business should check with their insurer or broker if they wish to confirm the type of cover that they have purchased.
How does business insurance work?
Commercial insurance is generally an advised sale where businesses make informed choices about the type of cover they need. An adviser or broker will work with the business and advise on the appropriate insurance to suit their needs. A very small number of businesses may have cover in place that specifically provides cover for contingency business interruption arising from notifiable diseases, such as coronavirus, where their premises have been contaminated, but this is not common.
Insurance policies are tailored to the needs of the individual business. It is not a one size fits all approach, as the insurance needs of no two businesses are the same.
Standard commercial insurance policies provide cover against a wide range of risks, including damage caused by fire, flood, losses by theft, accidents involving employees and the need for temporary trading premises in certain circumstances (following severe flood or fire).
What is business interruption insurance?
Business interruption insurance covers a business for loss of income during periods when they cannot carry out business as usual due to an unexpected event arising from a set of perils that will generally be specified in the policy. It aims to replace certain losses sustained by the business during the period of the disruption.
The insurance may compensate the business for any increased running costs and/or shortfall in profits as the result of the event, up to certain limit that is set out in the policy.
What do business interruption policies generally cover?
Most policies will provide cover if the premises or equipment are damaged by a named peril, such as a fire, flood or storm, and also often for the breakdown of essential equipment.
Some policies may also cover business interruption as a result of people not being able to access the business due to a specific circumstances (such as the police cordoning off an area due to an event such as terrorism, a fire, or the risk of a collapsing building etc). In many cases this is known as ‘restricted access’ cover or ‘non-damage business interruption’ cover and is usually an add on to a standard policy that can cost more.
How do businesses purchase business interruption cover?
Business interruption insurance is usually offered as an optional extra to business insurance packages, which combine a number of different policies under one premium. It can also be offered as an optional extra to buildings and contents insurance policies in some cases. Most businesses purchase a package of insurance from a broker who will work with them to ensure that they have the appropriate cover for their needs.
Does standard business interruption insurance provide cover for businesses who are not able to operate due to the effects of Covid-19?
Standard business insurance policies are designed and priced to cover standard risks and are therefore very unlikely to provide cover for the effects of global pandemics like Covid-19. This includes forced closure by the authorities. Businesses may have chosen to purchase cover that will specifically provide for business interruption arising from notifiable or infectious diseases. For certain notifiable disease extensions cover may apply if other policy conditions are met. However, this type of extension is not commonly included as standard. Furthermore, the likely costs to businesses of cover that would include more unusual risks – such as those posed by new diseases – would be prohibitive.
Businesses who are concerned about the impacts of Covid-19 should check the scope of their cover, and check with their insurance adviser or broker.
Does a ‘notifiable disease’ extension to business interruption cover my business for Covid-19?
Most notifiable disease extensions tend to cover specific diseases that will be named in the cover. If Covid-19 is not specified, then cover may not apply.
Some notifiable disease extensions are more general and do not specify certain diseases. In these cases, business interruption cover for Covid-19 may apply if Covid-19 is present in the business.
If you are unsure about what your policy covers your business for, check with the broker you purchased the policy from or your insurer if you purchased it directly.
Are there any other extensions to business interruption that may provide cover?
Some coverage may exist if the business has purchased a ‘non-damage, denial of access’ extension to a business interruption policy. Again, purchase of these extensions tends to be rare and this is not generally covered under standard business interruption policies.
Generally, ‘denial of access’ cover applies to cordoned off areas and loss of trade resulting from a denial of access to the premises (e.g. as a result of a police cordon). If a business is forced to close or is told to close by an appropriate authority or is cordoned off, this could trigger a claim under a ‘non-damage, denial of access’ business interruption extension if the infectious disease cover is unspecified or if it includes Covid-19.
Income Protection Insurance
Income protection policies, whether provided by an employer to employees or bought by individuals, typically cover short and long term absence from work due to ill health or injury, and have a waiting period before money is paid out. Such policies are unlikely to cover people self-isolating as they probably won’t be off work longer than the waiting period and may not be too ill to work. However, some policies with a short payment term are designed to kick in with either no waiting period or only a period of one week, and so are likely to cover people who are self-isolating based on medical advice and are unable to work.
What products will pay out when I cannot work due to illness?
Income protection and sick pay-style products are designed to pay a benefit to replace a loss of earnings if you are unable to work due to illness or injury for the length of the policy, or until you can return to work, depending on which comes first.
Typically, there is a waiting period before the policy kicks in. The waiting period is typically between 1 to 12-months, often depending on your individual circumstances and budget. There are also short-term policies available that provide cover from day 1 of absence.
Will insurance cover pay out if I self-isolate?
Insurers will pay out under the terms of their contracts, but policyholders should be clear on the terms of their coverage. Self-isolation is only likely to be covered for those income protection policyholders where an individual has been advised to do so by a medical professional.
For claims to be paid the policyholder needs to meet the definition of incapacity. Policies will vary and it is important to check with your insurer or adviser.
Self-isolation which is not medically advised is unlikely to be covered unless symptoms are severe and continue beyond the waiting period.
Trade Credit Insurance
Trade credit insurance provides cover for businesses if customers who owe money for products or services do not pay their debts, or pay them later than the payment terms dictate. This could result from businesses not being able to pay for goods and services delivered as the result of Coronavirus.
Is there any business cover against suppliers going insolvent?
Trade credit insurers do not provide cover for loss of production volume or the insolvency of a supplier, only the failure of a customer to pay for purchased goods. It is primarily insurance to cover the potential failure of a customer to pay for goods and services rendered in the event of insolvency or in the event of late payment.
Is my business covered by insurance against delays in payments across the supply chain?
Trade credit insurance provides coverage for delayed payments, ensuring that late payments do not put your company under financial strain.
Can I still purchase trade credit insurance?
Yes, insurers continue to offer cover for the sale of goods and will provide you with advice and guidance to ensure that you are protected against the failure of customers to pay for goods and services that you have supplied.
What if I am trading with a region affected by Coronavirus?
Insurers will assess trade on a case by case basis for those countries/regions that are experiencing the most severe impact of the virus. Insurers may set specific conditions or credit levels for such trade.