The FSCA and Prudential Authority (jointly referred to as the Authorities) are engaging with the insurance industry on Business Interruption (BI) insurance to understand, inter alia, the full impact of BI claims following the outbreak of COVID-19.
Joint Communication 5 of 2020, Covid-19 – Regulatory response: Business Interruption Insurance sets out the Authorities’ position on aspects of BI insurance, as well as their expectations of non-life insurers and intermediaries as to how they should communicate with policyholders in respect of BI claims related to COVID-19.
BI insurance can be classified into two categories, namely Standard BI insurance and BI insurance with extensions.
Standard BI Insurance
Standard BI insurance requires a physical damage trigger. Industry engagements reveal that the majority of BI policies relate to standard BI insurance where a policyholder should, in terms of the policy, prove physical damage to the business premises covered under the policy. In the absence of such physical damage, an insurer is not contractually bound to provide policy benefits to a policyholder therefore COVID-19 will not be covered in the standard policy.
BI insurance with extensions
There is a small percentage of BI policies in the industry which have extensions for infectious/contagious diseases. However there seems to be various interpretations as to what the trigger is for a valid claim or how exclusions for a pandemic should be applied.
It appears that insurers and reinsurers are interpreting the infectious/contagious disease extension in relation to the COVID-19 pandemic to apply only where the loss of business income was due to the business being interrupted as a result of a localised COVID-19 infection and not as a result of other related actions such as lockdown introduced by government. The Authorities advise insurers that there should be clear communication with policyholders either directly or through their intermediaries, regarding the impact of COVID-19 on coverage.
Endorsements
Joint Communication 5 of 2020 also references FSCA Communication 12 of 2020 (General) which required that if any new exclusions or requirements are introduced during the period of the COVID-19 pandemic, such exclusions must be discussed with the FSCA. Whilst the Authorities are still engaging with insurers, it is clear that most insurers intend withdrawing cover related to infectious or contagious diseases mid-term.
Pending Claims
Insurers have received claims on policies both in respect of the standard BI insurance and those with BI extensions for infectious/contagious diseases. Some insurers which have received claims on policies with BI extensions, are still seeking legal advice and engaging with their reinsurers on these claims. The Authorities expect insurers to provide regular feedback to policyholders in this regard and make decisions on these claims within a reasonable period in line with TCF principles.
The Authorities will continue to engage with insurers on the developments on BI claims as well as the mid-term withdrawal of cover for infectious/contagious diseases.
Advisors should look out for communication from insurers relating to the implications of COVID-19 for existing and new policies and ensure that they provide their clients with clear communication on their coverage and any changes to the terms and conditions of their policies.
To read the article we previously published on FSCA Communication 12 of 2020 (General), click here.