View this article online: https://www.insurancejournal.com/news/international/2020/03/20/561842.htm
Insurers in the UK, France and Germany are likely to face only moderate business interruption (BI) claims as a result of the coronavirus outbreak because pandemic-related claims are excluded from most business interruption policies in the three countries, said Moody’s Investors Service in a sector comment.
Although insurers’ direct claims exposure may be limited, Moody’s said, the sector faces reputational risk if there is widespread non-payment of business interruption claims because “some policyholders may not be aware that infectious diseases are excluded.”
Moody’s explained that business interruption insurance typically covers firms only against closure due to physical damage. Indeed, the Association of British Insurers (ABI) on March 17 said that “the vast majority” of businesses will not have purchased policies that compensate them for such forced closure.
The ABI statement came on the heels of the UK government’s recommendation on Monday, March 16, that people avoid pubs, cafes and theaters in order to slow the spread of the coronavirus pandemic. On Friday, March 20, Prime Minister Boris Johnson decided to order pubs, restaurants and leisure centers to close.
“Similar restrictions on the leisure and hospitality sectors are in force in France, Germany and other European countries,” said the Moody’s bulletin titled “European insurers’ coronavirus BI claims will likely be limited, a credit positive.”
“Irrespective of whether or not the government orders closure of a business, the vast majority of firms won’t have purchased cover that will enable them to claim on their insurance to compensate for their business being closed by the coronavirus,” said the ABI in its statement. “Standard business interruption cover – the type the majority of businesses purchase – does not include forced closure by authorities as it is intended to respond to physical damage at the property which results in the business being unable to continue to trade.”
Moody’s said most major insurers operating in the UK market, including Allianz, AXA, Aviva, Lloyd’s of London and RSA provide business interruption cover.
However, the ABI said, only a small minority of typically larger companies are likely to purchase extensions to their covers for closure due to infectious diseases. While enforced closures could help them make claims, “this will depend on the precise nature of the cover they have purchased so they should check with their insurer or broker to see if they are covered,” the ABI added.
An even smaller number of businesses will have cover that enables them to potentially claim against the coronavirus pandemic, depending on the terms and conditions of their policies, Moody’s continued.
In France, most insurers are similarly under no contractual obligation to cover business interruption costs triggered by pandemic events, said Moody’s.
The ratings agency quoted France’s insurance industry association, the Federation Francaise de l’Assurance, which said “almost all” commercial insurance policies exclude claims due to epidemics.
“However, the French government has said it is in talks with insurers to identify ways in which they can support the corporate sector as part of a national solidarity effort against the coronavirus outbreak,” said the commentary.
In Germany, business interruption policies generally only cover damage caused by fire, theft, or natural hazards such as storms, said Moody’s, quoting to the Gesamtverband der Deutschen Versicherungswirtschaft (GDV), the country’s insurance industry body.
While companies can buy additional protection against communicable diseases, few have done so, the GDV said.
Source: Moody’s, ABI
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