Tens of thousands of small businesses across the UK will now receive insurance settlements covering losses from the first national lockdown from their business interruption insurance policies, following the Supreme Court ruling regarding Business Interruption cover.

This is good news for the businesses that have been affected by the pandemic but will have a significant impact on insurers` results.

Our Specialist adjusting team has reflected on what can we can learn from the Supreme Court ruling and its impact on the insurance industry.

Who is covered?

It’s important to remember that although any customer with a business interruption policy can submit a claim, not everyone will be covered – it will depend on the wording of the individual policy. For example, some policies exclude specified diseases under the 1988 Public Health Act which means the customer will not be covered for losses related to the pandemic.

Supporting our customers

To date, little has happened since the judgement, many policyholders have received letters from insurers saying they are currently reviewing their claim and will be in contact. Insurers are reviewing their policies in line with the judgement and preparing guidelines for Adjusters as to how these claims should be processed. Many Insurers have forecast the anticipated volumes of claims likely to be presented.

Our claims teams are currently clarifying and confirming information needed for the Business Interruption claims process to our clients` policyholders.  When we receive approval, we will be in a position to consider and/or settle the claims as efficiently as possible. There is a lot of information required for the claims process such as business accounts, details of turnover, savings, furlough payments and grants etc. Wherever possible where we have already been notified of the claim, we try to capture this information as early as possible to speed up the process for customers.

We are also reopening many claims that were registered and declined before the latest Court decision. We suspect that many of these claims still will not be covered, but it is crucial that we re-evaluate in light of the latest decision.

Avoiding pitfalls & preparing for fraudulent claims

Inevitably we need to be mindful of fraud relating to Business Interruption claims, and people trying to take advantage of the Court`s decision. A thin line exists between exaggeration and fraud, but some claims may be considerably overstated and forensic accountancy practices will be employed to eradicate these claims.

Key aspects that our Adjusters and Claims Handlers will need to pay attention to is when the cover was taken out, and when renewal was accepted, given we are in a third national lockdown.

Some businesses have had business interruption cover removed at renewal, and it will be a true lesson in checking the fundamentals first.

The future

Insurers are expected to be hit hard by this decision, there are forecasts of costs being over £2 billion across the industry.

In the long term, as Underwriters never planned for a national pandemic, many are changing their policy wordings, similar to the effects of the volcanic ash cloud disaster in 2010, where travel policy wordings changed to reflect this impact. Pandemic cover is most likely to be an extra premium cover option in the future.

There is no doubt that insurers faced with large Business Interruption settlements will recover and adapt. They will look at their underwriting algorithms to make sure that they don’t take on such exposed risks going forward. Insurers themselves will be reinsured.

The ultimate impact on the industry is that insurers will underwrite differently and there will be an impact on premiums and choice. But from experience, insurers will innovate and compete to provide the best cover possible.

For further information and advice, please contact Paul Emptage, Head of Field Adjusting on paul.emptage@davies-group.com.