The insurance industry could face a public relations disaster if it maintains an across-the-board stance of rejecting claims under business interruption policies during the coronavirus pandemic. Meanwhile, its approach also serves as a much-needed reminder to policyholders that choosing insurance on price alone is risky.
The situation appears to be worsening thanks to the actions of several insurers that have clear terms including pandemic coverage, but which are nevertheless refusing to pay apparently valid claims on the grounds of a perceived threat to their own existence.
“If business interruption policies clearly cover coronavirus-related losses, or if the wording of any policy is ambiguous, then just issuing a blanket ‘no’ is always the wrong thing for insurers to do,” says David Pryce, managing partner at Fenchurch Law, a boutique law firm which specialises in insurance coverage disputes. “During the coronavirus lockdown, there are countless businesspeople feeling terrified about their economic futures.”
The refusal-first approach being taken by some insurers is particularly unwelcome given the London insurance market’s reputation for fair claim payouts, established during the aftermath of the 1906 San Francisco earthquake. “The market has benefited for over 100 years from that incredible response and insurers need to remember that paying claims during a crisis isn’t just the right thing to do, but it’s good for business,” says Pryce, whose firm acts exclusively for policyholders.
The COVID-19 crisis represents a major opportunity for insurers to deliver desperately needed help to stricken businesses making valid claims
The uphill struggle for businesses around COVID-19-related claims is reminiscent of another recent issue: the payout problems for the owners and residents of residential tower blocks in the wake of the 2017 Grenfell Tower fire. Policyholders felt their “latent defects” policies covered them for replacing the dangerous cladding on their properties, but many found claims being wrongly refused.
“With coronavirus as with cladding, not only should the policies that clearly cover claims lead to prompt payments, but insurers have a moral obligation to help their policyholders if there is any reasonable ambiguity. The insurance market provides a valuable public service and should be about more than short-term profit,” says Pryce.
The current problems in extracting business interruption payments from insurers may, however, change commercial policyholders’ approach as it shows the clear need for companies to reduce claim payment risk. Essential measures include careful selection of insurers, addressing concerns in policy wordings early on and involving brokers before the parties reach loggerheads.
“While in the case of coronavirus, the situation is here and it is too late to change the early decisions taken by insurers, it does shine a spotlight on the need for careful insurance selection,” Pryce explains. “Policyholders must look at insurers’ payout record, examine terms and never choose policies based on the lowest cost alone because that will backfire when there’s a claim.”
During a disputed claim, all is far from lost as there are still steps that can bring about success. “Policyholders must involve their broker,” says Pryce. “The broker can bring a lot of pressure on the insurer, because they supply so much business. Doing so can transform an individual claim from being easy to refuse into a much bigger threat of losing multiple customers’ future business.”
Fenchurch Law acts for policyholders alone in resolving insurance disputes and it involves brokers alongside making legal representations; only rarely are court proceedings needed. The technique has an extensive successful history, including when working alongside a broker allowed the firm to resolve a client’s £70 million loss from the London riots in 2011, without the need for litigation.
The COVID-19 crisis represents a major opportunity for insurers to deliver desperately needed help to stricken businesses making valid claims. It equally represents a turning point for companies in how they approach insurance selection and negotiation, and how they work with brokers to ensure fair claims are met.
To find out more about insurance risk reduction and effective dispute resolution please visit fenchurchlaw.co.uk