The Scottish political party says firms will collapse while they're waiting for insurers to justify their actions on business interruption policies
The Scottish National Party (SNP) has called on the UK Financial Conduct Authority (FCA) to put more pressure on insurance companies refusing to pay out on business interruption claims made due to Covid-19.
SNP MP Alison Thewliss has written a letter to FCA interim chief executive Christopher Woolard, urging him to put more pressure on providers to pay claims she believes cover pandemic and disease risk.
Thewliss’s letter comes amid backlash against UK industry giant Hiscox for refusing to pay out on business interruption claims lodged due to Covid-19 disruption, as well as comments from the legal sector suggesting insurers will see a raft of class-action lawsuits for similar claim denials.
In it, Scotland’s shadow chancellor and MP for Glasgow Central said: “As you will be aware, the coronavirus crisis has had a severe detrimental effect on small and medium businesses across the country.
“This has been exacerbated in no small part by insurance companies determining that claims cannot be made on certain business interruption policies.
“I have heard from a number of small businesses in my constituency that, despite having business interruption policies – in some cases covering pandemics, infectious diseases, and closures instructed by public authorities – insurers are refusing to honour claims for associated losses.”
“I understand from speaking to colleagues that this is the same across the country.”
The FCA interim chief executive Christopher Woolard released a letter to insurance CEOs on 15 April explaining that although most business interruption policies don’t include coverage for pandemics or infectious diseases, there are cases “where it is clear that the firm has an obligation to pay out”.
Woolard also set out an expectation that where there are “reasonable grounds” to pay part of a claim, but not the full amount, this should be done, and where it isn’t, the regulator expects an explanation as to why.
SNP wants regulator to force insurers to pay
While Thewliss praised the expectations set out by Woolard, she urged the FCA to do more to ensure these claims are paid out before the financial damage of Covid-19 bankrupts businesses.
“Whilst I welcome this action I am worried that by the time insurers respond, detailing to the FCA the reasons for rejecting any claims, it will be too late for some businesses who will have already collapsed,” her letter continued.
“Many businesses have taken the prudent and practical step of taking out insurance policies to protect against unforeseen events. They believed they were fully covered.
“In these challenging times, small companies are telling me that they feel abandoned, and that without urgent support they will not survive. Referring complaints to the Financial Ombudsman Service will only add further delay, time companies just don’t have.
“With this in mind, I urge you to bring what further pressure you can bear on insurance companies and brokers, in order that claims can be lodged and settled in a timely manner.”
Forcing insurers to pay would be ‘a shortcut to their insolvency’
Responding to the letter from Thewliss, the Association of British Insurers reiterated its stance on business interruption cover for Covid-19, suggesting that paying out on policies could be an existential threat for firms.
An ABI spokesperson said: “While most business insurance does not cover for pandemics, overall, UK insurers expect to pay over £1bn in Covid-19-related claims.
“This includes travellers, some businesses, cancelled school trips, event organisers, families organising weddings and in other areas of life.
“The industry also pays out day in, day out to help customers manage the everyday problems they face.
“Businesses are typically protected against day-to-day risks such as damage to premises, motor accidents, supplier failure and employee harm.
“Last year, in the UK alone, these types of everyday claims from businesses amounted to £7.8bn.
“Unfortunately, no country in the world has an insurance market that is able to offer widespread pandemic cover.
“Forcing insurance companies to pay for risks that aren’t covered in contracts would be a shortcut to their insolvency.
“Given the sheer scale of economic impact, extensive pandemic insurance cover can only happen with some form of government support, and we need a debate about how this can best be achieved in the future.