Coronavirus: Majority of companies will not be able to claim insurance on cost of shutting business down

The majority of businesses will not be able to claim on their insurance for the cost of the coronavirus shutdown, even if Boris Johnson orders them to close, the insurance industry has warned.

The prime minister’s decision not to require the closure of pubs, clubs and theatres, while urging consumers not to visit them, caused outrage among operators who said it would prevent them from making insurance claims.

But the Association of British Insurers said today that only a “small minority” of larger firms are believed to have policies which cover them for the cost of business lost due to infectious diseases.

The statement increases pressure on chancellor Rishi Sunak to come up with a multi-billion pound package of protection to prevent businesses from going bust in the crisis.

A senior member of the government’s fiscal watchdog, the Office for Budget Responsibility, has said the state should take on the role of “insurer of last resort” in recognition of the fact that the private insurance industry does not have the resources to cover the cost of business closures.

French president Emmanuel Macron has already led the way by announcing a €300 billion package to ensure that “no business whatever its size will face risk of bankruptcy”.

Following widespread calls from businesses for the PM to mandate closure in order to allow them to make insurance claims, the ABI released a statement warning that most will not be able to do so.

“Irrespective of whether or not the government orders 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,” said the ABI, which represents the UK’s insurers.

“Standard business interruption cover - the type the majority of businesses purchase - 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.

“A small minority of typically larger firms might have purchased an extension to their cover for closure due to any infectious disease. In this instance an enforced closure could help them make the claim, but this will depend on the precise nature of the cover they have purchased so they should check with their insurer or broker to see if they are covered.”

OBR committee member Sir Charlie Bean said the state will have to act as “insurer of last resort”.

And the former Bank of England deputy governor said Mr Sunak should not be deterred by the need potentially to spend billions of pounds.

Skimping on protection for businesses would be “counter-productive in the long run” because it would mean the state being deprived of future tax revenues from companies which fail during the outbreak, he said.

“All the evidence we have from financial crises or things like this is big early action is better than half-hearted action and delay,” Prof Bean told the House of Commons Treasury Committee.

He added: “There is a very good argument that the state should be the insurer here.

“There is quite a lot of discussion about wanting the government to mandate bars and restaurants to close so people can claim against their insurance policies, We seem to forget that insurers have limited pockets.

“We are taking about such a deep and widespread downturn here and all we are doing is passing the problem on to an insurer who may not be able to pay.

“This to me is exactly the case where the state should be stepping in to try to implement things which minimise unnecessary damage to the supply side.”

While some companies would be able to reduce their losses by effectively asking staff to go on “long unpaid holidays”, others - such as airlines which have taken on significant debt to buy planes - will have little way to stem the financial damage of a halt to business, he said.

“There may be a question of whether the insurers have deep enough pockets to be able to pay out,” said Prof Bean.

“This is why in some sense you need the state to be there as the insurer of last resort against what is essentially an act of God.”