An unusual week

It's been an unusual week.

I've spent much of it trawling through various insurers policy wordings to establish their exact position on your friend and mine, coronavirus. The highlight of what has been uncovered does not make great reading for small business as the majority will not be covered for losses stemming from this pandemic.

There are several reasons for this but ultimately I asked the question why are insurers not picking up this risk?

I think the real reason is that the insurance industry as a whole does not view pandemic risk as one that should be covered by insurance and is more of a governmental risk. I believe there are parallels between this position and a decade or so ago regarding the flood risk and climate change.

At that point the insurance industry felt that global issues such as climate change bringing on a greater flood risk should be met by governmental action and not individual homes and businesses seeking to offset their risk with insurance. In the end, an uneasy truce was called with the insurance industry developing a flood solution and the government agreeing to substantially increase funding for flood defences. Fast forward 10 years and these flood defences have been severely tested this winter and, despite the still extensive flooding, many fewer homes and businesses have been affected by the rising waters that would have been the case 10 years ago.

I feel that we are at a similar stage with pandemic risk and it remains to be seen whether over the coming months and years a similar scenario will play out with the risk being transferred to the insurance industry and more insurers providing cover. That does not help small business in the meantime with many, many businesses facing potential costs or loss of income in the face of government advice to cease operations or substantially change methods of working.

My sympathies lie with those small businesses that face a risk that six months ago would barely have registered with them. Indeed, had I approached the insurance market on behalf of my clients at that time and specifically asked for cover against such a pandemic, I would most likely have been greeted with derision or at best a polite, “thanks but no thanks”.

Unfortunately, scenarios like this do not put the insurance industry in a positive light with many policyholders asking why this kind of unforeseen eventuality is not covered. I have even seen evidence of insurers seeking to create marketing capital out of the position by shoehorning a positive spin on their policy wordings in stark contrast to their immediate competitors. Whilst this may benefit the policyholders in the short term it does not present a united front to the insurance buying public which, ultimately is needed to develop a sense of trust in the industry.

This story has a good way to run yet and I do fear that no-one will come out of it well.