Small and medium-sized businesses fear they will not be able to survive the economic impact of the coronavirus lockdown. Photograph: James Veysey/Rex/Shutterstock
Most UK businesses will not be eligible for insurance payouts over the Covid-19 lockdown, the City watchdog has warned, adding that it was not prepared to intervene on their behalf.
In an open letter to insurance chief executives on Wednesday, the Financial Conduct Authority said it found that most claimants on business interruption policies did not have the right coverage to warrant a payout during a pandemic.
“Based on our conversations with the industry to date, our estimate is that most policies have basic cover, do not cover pandemics and therefore would have no obligation to pay out in relation to the Covid-19 pandemic,” the FCA’s interim chief executive, Christopher Woolard, said.
“While this may be disappointing for the policyholder we see no reasonable grounds to intervene in such circumstances.”
The move is likely to anger small and medium-sized business owners who fear they will not be able to survive the economic impact of the coronavirus outbreak.
Typical business interruption policies pay up to £100,000 to cover the cost of keeping a company running if it is forced to shut for reasons beyond its control, such as flooding or fires.
However, while large insurers such as Hiscox sold policies before the lockdown that promised to pay out if businesses were forced to shut because of a notifiable disease, business owners say their claims have been denied because the policies do not specifically cover pandemics. A group of brokers and loss adjusters are planning legal action against some of Britain’s largest insurance companies.
The FCA said some small businesses – that earn less than £6.5m in revenues and employ fewer than 50 employees – can still take claims worth up to £355,000 to the Financial Ombudsman Service, which could result in faster decisions than if they were taken through the courts.
However, in a warning shot at the wider financial sector, the watchdog announced that it was also launching a new small business unit that would keep an eye on how smaller firms are treated by financial services during the outbreak.
The FCA also said insurers should be acting quickly to get money to businesses who have legitimate and undisputed claims, and should give partial payments where only part of the claim is under review.
Most UK businesses will not be eligible for insurance payouts over the Covid-19 lockdown, the City watchdog has warned, adding that it was not prepared to intervene on their behalf.
In an open letter to insurance chief executives on Wednesday, the Financial Conduct Authority said it found that most claimants on business interruption policies did not have the right coverage to warrant a payout during a pandemic.
“Based on our conversations with the industry to date, our estimate is that most policies have basic cover, do not cover pandemics and therefore would have no obligation to pay out in relation to the Covid-19 pandemic,” the FCA’s interim chief executive, Christopher Woolard, said.
“While this may be disappointing for the policyholder we see no reasonable grounds to intervene in such circumstances.”
The move is likely to anger small and medium-sized business owners who fear they will not be able to survive the economic impact of the coronavirus outbreak.
Typical business interruption policies pay up to £100,000 to cover the cost of keeping a company running if it is forced to shut for reasons beyond its control, such as flooding or fires.
However, while large insurers such as Hiscox sold policies before the lockdown that promised to pay out if businesses were forced to shut because of a notifiable disease, business owners say their claims have been denied because the policies do not specifically cover pandemics. A group of brokers and loss adjusters are planning legal action against some of Britain’s largest insurance companies.
The FCA said some small businesses – that earn less than £6.5m in revenues and employ fewer than 50 employees – can still take claims worth up to £355,000 to the Financial Ombudsman Service, which could result in faster decisions than if they were taken through the courts.
However, in a warning shot at the wider financial sector, the watchdog announced that it was also launching a new small business unit that would keep an eye on how smaller firms are treated by financial services during the outbreak.
The FCA also said insurers should be acting quickly to get money to businesses who have legitimate and undisputed claims, and should give partial payments where only part of the claim is under review.