Businessman on finance backgroundBusinessman on finance background

Insurers are facing concerted pressure to be to clients during the coronavirus crisis, with some that are stepping up but others dragging their heels.

Disputes over business interruption claims have continued with barely any interruption for the past few weeks and suggestions that the UK government should join the debates in many US states over the potential introduction of legislation to compel insurers to pay all business interruption claims.

Meanwhile, motor insurance specialist Admiral Group PLC (LON:ADM) has taken proactive action and begun giving rebates to customers. 

With cars mostly sitting unused, Admiral has followed up premium rebates of £25 per insured vehicle, amounting to £110mln, with a new commitment of £18 per vehicle to reduce prices and support customers.

MPs have written to the Chancellor of the Exchequer to ask the Treasury to encourage other motor insurers, such as Direct Line Insurance Group PLC (LON:DLG) to follow suit.

“This further confirms that the trends we are seeing in the US and Canada are being picked up by Admiral, and it will be interesting to see which insurers might follow (but some like Sabre (LON:SBRE) have already ruled it out, whilst Hastings (LON:HSTG) is keeping its options open,” said analysts from Peel Hunt. 

But in another corner of the insurance sector, pressure is being stepped up on underwriters following Friday’s estimate from the Association of British Insurers that UK payouts over coronavirus could amount to £1.2bn, with around £900mln of that paid out to those few firms that have infectious disease insurance.

This comes amid growing complaints from firms in various sectors that insurers are not paying out for business interruption insurance. 

For example, UKHospitality, the trade body representing pubs, cafe, catering, hotels and nightclubs, has said that 71% of its members have had interruption claims rejected, with only 1% having any success.

Several law firms are reported to have been contacted over potential class action lawsuits.

Around 200 business customers of FTSE 250-listed Hiscox Ltd (LON:HSX) have appointed law firm Mishcon de Reya to look at a potential claim over the insurer’s refusal to pay out on business interruption policies, having been considering legal action for some weeks.

RSA Insurance Group PLC (LON:RSA) could also face a similar group claim from owners of holiday let properties, it was reported in the Sunday papers.

While the government is looking to pressure insurers to respond to and pay claims without delay where coverage exists, lawyers say the only insurance policies where claims are likely to be valid are where the policy has been badly worded. 

One Lloyds underwriter, Beazley PLC (LON:BEZ), has estimated that its total claims arising from the pandemic will reach around US$170mln after accounting for reinsurance, with most business interruption claims received from the US and with policies not covering Covid-19.

Another, Hiscox, which expects to pay out US$150mln of claims for cancelled events, entertainment and travel up until September, said this month that its core small commercial package policies “do not provide cover for business interruption as a result of the general measures taken by the UK government in response to a pandemic”.

It also argued that the government’s social distancing measures were “not directly aimed at limiting access to an individual business’s premises, or any particular business premise” and that pandemics such as this “are simply too large and too systemic for private insurers to cover”.

This is a stance that the UK financial regulator has backed, acknowledging that most policies held by small firms were unlikely to provide cover for such disruption, though lawyers say this analysis may or may not be correct.

Either way, have these insurers wondered what the risk is of reputational damage?