Law360, London (March 30, 2020, 3:40 PM BST) -- The government will have to introduce subsidies if it wants most companies to have cover for business interruption caused by pandemics, an insurance trade body has warned.
The Association of British Insurers said it wants to establish a partnership with the government to help widen the scope of coverage.
The trade body spoke out on Thursday in a second response to the parliamentary Treasury Committee, which wrote to the ABI last week over concerns that insurers have withdrawn cover or stopped paying claims in connection with the COVID-19 crisis.
“No insurance market in the world provides widespread insurance coverage for pandemics, and the U.K. is no exception,” the ABI told lawmakers in a letter. “For such cover to be available at affordable prices for businesses would require a very significant subsidy from the state, given the scale of business disruption we have seen with the COVID-19 pandemic."
The government effectively subsidizes home insurance, through Flood Re, for people who own property in areas where floods are likely, and for whom insurance would otherwise be prohibitively expensive. And businesses that face disruption or damage from terrorism attacks have access to affordable cover that is reinsured through state-backed Pool Re.
The ABI stopped short of calling for the creation of a “Pandemic Re” to formalize subsidies on extensions for business interruption products offering coronavirus cover, but said it was open to working with the government.
“We want to lead a debate with government about how to protect more businesses and individuals than has been the case with COVID-19, which would require significant state partnership with the insurance sector if coverage is to increase,” the letter said.
Business interruption insurance, which pays out if a company is forced to close, is generally limited to physical damage.
Add-ons exist to cover cases when a company closes because of “notifiable disease” outbreaks, but those only take effect where the government has ordered a company to close, or the outbreak is on site. Even then, some notifiable disease cover contains exclusions over pandemics.
The ABI said that only a “very small minority” of businesses will have the required business insurance in place to enable them to successfully claim.
Lloyd’s chief executive John Neal was asked in a media call on Thursday for his opinion on the creation of a state-backed pandemic reinsurer.
He said he had written to the Treasury to discuss potential cooperation on “solutions that might work now, and solutions that might work in the future.”
“Watch this space: I’m sure there will be some good ideas that will come from that,” he added.
A spokesman for the Treasury did not immediately respond.
--Editing by Ed Harris.
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