Insurers have been accused of “abdicating responsibility” after they said that most businesses would not be covered for the catastrophic costs of disruption related to coronavirus
The industry said that business interruption policies would not apply even if the government ordered restaurants, bars, theatres and other companies to close to tackle the pandemic.
Instead, insurers called on the government to act as an “insurer of last resort” to help companies facing ruin.
Kate Nicholls, chief executive of UK Hospitality, a trade body, said: “The insurance industry has abdicated responsibility for the thousands of hospitality venues who have bought policies in good faith and who, through no fault of their own are unable to trade.”
On Monday Boris Johnson was criticised when he told people to avoid pubs, bars and restaurants but stopped short of ordering their closure. Critics said that the prime minister’s advice would destroy demand while the lack of a state order to close would make it harder for companies to claim on their insurance.
However, insurers said that most companies would not be covered. The Association of British Insurers said: “Irrespective of whether or not the government order 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.”
Ms Nicholls said: “Removing that safety net impacts millions of workers who depend on them for their livelihood. This is a slap in the face but perhaps it will be a wake-up call to government that there is no one else who can help save those jobs.”
Most businesses buy policies which pay out for setbacks such as fires, floods or if staff are injured at work. Such standard “business interruption cover” 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,” the ABI said.
A spokeswoman for the association said that only a small minority of businesses, typically larger ones, may have an extension related to infectious diseases. However, even in those cases where policies include “notifiable diseases” they would probably not pay out because coronavirus received this classification only this month.
The Forum of Private Business called on insurers to at least honour claims for companies who had notifiable disease cover.
The Most Rev Justin Welby, the archbishop of Canterbury, said that the government must step in to ensure companies could call on insurance. “We need those small businesses to be able to pick themselves up at the end of this, to heal and move on. We need major intervention,” he told the BBC.
The prime minister, said insurers had been asked to “step up to the plate” to help companies, but industry figures said that the sector had not been writing policies or collecting premiums to cover this type of highly unusual and potentially expensive risk, so it could not now be expected to pay out.
The government sometimes acts as insurer of last resort on risks that the private sector will not tolerate. Examples include flood risk and supporting lending to small businesses.
Sir Charlie Bean, of the Office for Budget Responsibility, told MPs: “The state should be the insurer in this situation. Insurers have limited pockets and businesses are just passing on their problems to insurers who may not be able to pay.”