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Following the disruption caused by the COVID-19 pandemic, many businesses have questioned whether Business Interruption Insurance is still worth purchasing.
The confusion around whether policies would respond to pandemic-related losses led some companies to wonder if the cover truly works when it is needed most.
In reality, insurers across the UK paid out around £2 billion in COVID-related Business Interruption claims. This represented a substantial and largely unexpected cost for the insurance industry, as traditional Business Interruption Insurance policies were not originally designed or priced to cover global pandemics.
So why were claims paid if insurers never intended to cover this type of event?
The key issue was policy wording. Some insurers had clearly written exclusions within their policies stating that losses arising from pandemics or widespread disease outbreaks were not covered. However, other policies contained wording that was less clear and open to interpretation. In these cases, businesses believed their policies should respond, while insurers initially argued that the cover did not apply.
The dispute ultimately led to a landmark test case brought by the Financial Conduct Authority (FCA) against a number of insurers in the UK. The courts reviewed the wording used in many different policies and determined that certain wordings did, in fact, provide cover for pandemic-related disruption. As a result, insurers were required to pay valid claims under those policies.
What this situation highlighted is not that Business Interruption Insurance is ineffective, but that the specific wording and structure of the policy is critically important.
Business Interruption Insurance continues to play a vital role in protecting businesses from unexpected events such as fires, floods or other operational disruptions that could otherwise threaten their survival.
Working with an experienced insurance broker, like Prizm Solutions, can help ensure your policy is clearly understood, correctly structured and tailored to your business risks - providing confidence that the cover will respond when you need it most.
