Insurance

Most coronavirus-hit UK firms not protected by their insurance policies

*Most policies exclude cover for pandemic-related sales losses as calls grow for more government help

Rachel Reeves is chair of the business, energy and industrial strategy select committee.

Rachel Reeves said even if the government mandated businesses to close, those businesses would not be able to make a claim. Photograph: Richard Gardner/Rex/Shutterstock

Most British companies that suffer a loss of sales or shut down due to the Covid-19 pandemic are not protected by their insurance policies, the Association of British Insurers has told MPs, leaving firms exposed to bankruptcy even when the government orders them to close.

Policies that protect companies from closure following a pandemic are rare the ABI said in a letter to the business, energy and industrial strategy select committee.

The ABI told the business committee that standard policies excluded cover for a loss of sales related to pandemics and only a few businesses pay the extra to include them.

The submission follows demands for the government to intervene and force hotels, pubs, gyms and cinemas to close, allowing them to claim on clauses in their insurance policies for “business interruption”.

Boris Johnson urged people to avoid all unnecessary contact and travel and advised them to stay away from pubs and theatres, but stopped short of following Spain and France with sweeping measures that include closing all museums, cultural centres and sports venues and in Spain meant restaurants and cafes can only do home deliveries.

Chair of the committee, Labour MP Rachel Reeves, said: “The ABI says most policies don’t cover pandemics, so even if the government mandated businesses to close, they won’t be able to make a claim. They won’t be covered.”

Martin McTague, head of policy at the Federation of Small Businesses, said it was his experience that very few small and medium-sized businesses bought insurance to cover business interruptions.

“Most of them think very short term. They don’t think about these things very far ahead.”

The committee heard that the lack of insurance and the potential for a prolonged shutdown meant the chancellor needs to match the plans put forward in Scandinavian countries that subsidise 75% to 100% of workers’ incomes.

Speaking to MPs on the business, energy and industrial strategy select committee, Alasdair Hutchison, policy development manager at the Association of Independent Professionals and the Self-employed (Ipse) said government support needed to go beyond the extension of sickness benefit to a broader package of subsidies.

“As time has gone on, we have realised this is going to be not only a health crisis but an income crisis. If you are facing no income for the next three to four months with projects cancelled and events not happening, with rent to pay and other costs, you need to move very quickly to something that is more of a temporary income protection fund,” Hutchison said.

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Rain Newton-Smith, chief economist at the CBI, said the government needed to go beyond the provision of statutory sick pay at £94.25 a week when companies in the hospitality industry were close to going bust.

Reeves said Norway has announced full pay for those laid off for 20 days and the self employed to receive 80% of their average earnings over the last three years.

Sweden said it would institute a plan for workers to receive 90% of their salary up to a cap, half paid by the employer and half by the government, while Denmark said it would make sure workers received 75% of salary up to an earnings cap.

The Guardian

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