Business Information Update From Towergate Insurance Brokers

Covid-19 is clearly an unprecedented situation and one that is incredibly fluid and will undoubtedly continue to change in the coming days, weeks and months.

Whilst there is no shortage of information from news and social media channels, we are writing with our opinion at the time of writing, specifically in terms of how the insurance market is responding.

Despite the recent assurances from the government, we are continuing to see and expecting ongoing resistance and/or lack of clarity from insurers regarding business interruption claims for consequential loss, despite the recent assurances from the government in its daily briefings.

Typically, in the UK and rest of the world, physical ‘damage’ needs to occur before business interruption insurance cover is triggered; this is also known as the ‘material damage proviso’. A voluntary or mandatory closure as prescribed by the UK Government is typically not covered by most policies due to the lack of ‘damage’. Please see the statement below from the ABI.

ABI Statement on Business insurance - 17 March 2020

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.

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.

A small minority of typically larger firms might have purchased an extension to their cover for closure due to any infectious disease. In this instance an enforced closure could help them make the claim, but 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.

We are investigating legal theories that may exist to find coverage, although the stance as of today is that it is unlikely a policy will respond on this basis.

However, Covid-19 is unprecedented and the financial and non-financial impact, to a large extent, remains unknown. 

Therefore, whilst the support measures very recently offered by the UK Government (including the Government-backed Coronavirus Business Interruption Loan Scheme) are welcomed, they may well decide in the future to take this a step further and compel insurance companies to grant policy coverage in some shape or form. 

On 20th March 2020 further relief was announced in relation to workers, following the closure of many leisure trades; for the latest guidance, please see www.gov.uk/government/publications/ guidance-to-employers-and-businesses-about-covid-19/covid-19- support-for-businesses 

Given the current uncertainty, we suggest the following practical steps:

• Keep accurate financial records during the time in case the UK Government introduces future initiatives to recompense or support.
• Contact your local MP to request that, given the uncertainty surrounding insurance coverage, UK Government takes action to support UK businesses.
• Remain vigilant regarding situation updates and heed UK Government and other guidance regarding the health & safety of your employees. 
• Remember to keep us informed on any material changes to your business e.g. any changes to products being manufactured or sold, territories sold to, the unoccupancy of any premises. If you have any employees taking equipment home, please advise us so that we can ensure the correct cover applies.
• If you have employees working from home, to ensure they remain fully covered, it would be prudent for them to advise their household insurer, especially if they may accept visitors. 
• Please remember to continue to adhere to all policy terms, conditions and warranties and advise us immediately should this not be practical. This would include security conditions e.g. ensuring all physical security and alarms/CCTV are in operation.
• It is likely that your account service team will be contacting you shortly, if they haven’t already; we understand that this may be a very busy and very stressful time, but please do try and spare the time to talk to us as we may need to discuss very important current or alternative options for protection; for example, the increased vulnerability to cyber-attacks as people move to home networks.

Business Interruption Claims

If you do feel that you have cover for Business Interruption or, dependent on potential future government relief, here is some advice in evidencing a loss and/or presenting a claim:

• keep a detailed log of visitors, which could become useful if the virus is identified on the premises
• identify and record declining business activity by analysing variances between forecast and actual revenues
• pinpoint additional costs and unusual costs incurred from mitigation activities and their effect on profit margins, for example:

- cleaning and disinfecting the premises

- overtime pay to make up for production losses

- media or communications campaigns to inform the public or employees

• potential costs associated with the virus and its business impacts, such as cancelled orders, supply chain breakage, and lost profits. Even if these may not ultimately be covered under current insurance, they can inform future risk mitigation, business continuity planning and management strategies.

The documentation that should be gathered for your insurance claim includes documentation from suppliers that are unable to deliver on their contracts and/or proof of government-mandated closures.

As already mentioned, the situation is fluid and changing on a regular basis. We will do all we can to keep you informed with developments. If you have any concerns or questions about your specific insurance cover or need to talk to us about changes to your business, please speak to your usual advisor.

In the interim and as further reading and business support:

• for more guidance on how to form a pandemic plan, please click www.towergate.com/insight/pandemic-planning-template
• for more guidance regarding business continuity planning, please click www.towergate.com/insight/business-continuity-planning

For full information from the ABI please see www.abi.org.uk/news/news-articles/2020/03/coronavirus-business-insurance-furtherguidance-from-the-abi/