Non-physical damage business interruption coverage

Since the emergence of the COVID-19 crisis, insurers have been called upon to compensate customers.

business interruptionApart from event cancellation, sickness and life claims, they are faced with an unprecedented upsurge in claims. Non-physical damage business interruption coverage has created a conflict between insurers and policyholders.

Business interruption coverage limit

In the context of Covid-19, the evaluation of the damage caused by this cover is never easy. Pecuniary losses resulting from immaterial damages are generally excluded from insurance policies. Operating losses not resulting from damage to the insured property are rarely underwritten because of their costly and unpredictable nature.

Business interruption coverage breeds conflict between insurers and insured

The Covid-19 has shaken the insurance business model, based on risk pooling. An exceptional event of this type, which affects the entire planet and brings a large number of business sectors to a standstill, is likely to jeopardize the very balance of the profession, that is the balance of mutuality.

he assumption of this risk under the business interruption guarantee would lead to the failure of companies' accounts to the point of causing them to go bankrupt to the extent that the financial sector would also collapse through a "domino effect".

However, despite this evidence, the refusal to compensate for operating losses not covered by a contract has tarnished the image of the profession. Several lawsuits have thus been filed, mainly by restaurant and hotel owners, against leading insurers such as Axa and Allianz.

Faced with the exceptional crisis caused by the pandemic, some insurers have opted to indemnify their clients beyond the guarantee. Others, on the other hand, have been forced to bear this risk following legal proceedings or a decision of the supervisory authorities.

Business interruption coverage: Governments seek alternatives

Such trusting issues and misunderstandings between the two parties could highly impact the market. Aiming at solving this problem and finding a permanent solution, the French Insurance Federation (FFA), is considering the implementation of a compulsory health disaster coverage. This wide coverage, which would involve both insurers and State, would extend to business interruption and would include risks other than the pandemic.

The United Kingdom has also begun discussions on the development of a future pandemic plan, aiming at improving the management of future crises. Lloyd's decides to create "Recover Re" type vehicle that provides a coverage for business interruption due to epidemics.

In addition to this, a group of British insurers involving Convex, Aviva, RSA has set up a reinsurance programme called "Pandemic Re" which is believed to receive government support.

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