COVID-19 raises posers over business interruption underwriting

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Insurers at discord on policy cover for pandemics

By Rosemary Onuoha

FOLLOWING the lockdown across the country on the backdrop of the coronavirus, COVID-19, pandemic which crippled economic activities, some business owners and organisations have started approaching their insurers for claims on business interruption insurance.

But Financial Vanguard findings show that while some insurance firms are set to honour some of the claims which are likely to be huge, others are not inclined to do so due to interpretational issues in the circumstances leading to the business interruption.

Meanwhile, findings also show that most businesses failed to include business interruption in their underwritten contracts, a development that has left them with the burden of the COVID-19 business lockdown; a few others are shielded as their insurers agreed to settle some of the claims as covered in the premium paid.

However, industry operators told Financial Vanguard that the number of businesses covered is significantly low as many business owners and organisations have always rejected the advice to take up business interruption insurance on the belief that the risks it tends to cover will not crystallise.

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As a result while many organisations have fire and burglary insurance in place, they refused to have business interruption covers which always comes as an extension of fire insurance.

Also some insurance companies were accused of blind-siding business interruption covers by removing it from fire and burglary policy due to the fear that the claims can be massive should the risk crystallise.

Financial Vanguard findings, however, show that the few insurers that offered business interruption covers have been hard hit by huge claims payment in the wake of the COVID-19 pandemic. Business interruption insurance is insurance coverage that replaces business income lost in a disaster.

The event could be, for example, a fire or a natural disaster. Business interruption insurance is not sold as a separate policy but is either added to a property/casualty policy or included in a comprehensive package policy as an add-on or rider.

Speaking on the development, Managing Director of FBN Life Insurance, Mr. Val Ojumah, said that some insurers have been hard hit by claims settlement in response to business interruption covers which have crystallized with the COVID-19 business shutdowns.

He, however, said that most policy holders are without business interruption as part of their package and they are carrying the burden on their own.

He stated: “Unfortunately the insurance sector cannot serve as a spring board for many businesses to bounce back because a business interruption policy documents clearly states what could lead to a claim.

“A business interruption policy will typically state the causes that could lead to claim. A business interruption cover in the oil industry for instance, will be attributed to physical damage to its facilities and can affect production.

“It is unlikely to be attributable to a situation where staff are unable to go to work. However, there are certain insurance policies that have provided very wide coverage and some insurers have been hard hit by the COVID-19 situation.”

Also speaking, Managing Director of Quicklinks Insurance Brokers, Mr. Rotimi Edu, said that the insurance industry is conservative in selling business interruption because the loss can be huge.

He said: “Business interruption insurance is not as popular yet in this country as it is in advanced markets because the losses could become very colossal sometimes especially in the manufacturing industry when there is a fire. So a good institution would have looked at its operation and at the inception of the policy would have agreed at what and what will cause interruption in that business to enable them have a cover for it.

“If the interruption could be due to fire, then a business interruption cover can be arranged because there are just pockets of fire incidences. But where it is a global issue like the COVID-19, that means that the insurance company will be in serious trouble. That is why government is adding some palliatives.

“Imagine if some small insurance companies have to start paying for salaries, loss of profit and business, it will run virtually the whole company aground. The fire and burglary policy offers business interruption as an extension which is consequential loss of profit or other occasional matters.”

Also speaking, Mr. Ayo Akande of Scib Insurance Brokers who is also a Non-Executive Director of Allianz Nigeria said that it is only in life insurance policies that pandemics are not excluded, adding that pandemics are mostly excluded in business interruption covers.

Akande said: “In Nigeria, the policy wordings are quite different from what obtains in other advanced markets. For example, in some advanced markets you have business interruption policies covering pandemics or epidemics, etc., which are exclusions here except under life insurance.

“So for property insurance, it is only if something happens to the building that business interruption can come into play. Unfortunately, coronavirus does not affect buildings. Also many businesses are going to record decline in profits because as people are not able to go about their businesses, it could affect their projected profit. While many of such businesses are hoping to get some form of relief from their insurers, business interruption is dependent on material damage to physical property. However a comprehensive package can cater for pandemics like the COVID-19.”

On his part, Managing Director of Boof Insurance Brokers, Mr. Olumide Fatogun, said that business interruption risks are mostly secondary as there must be a primary risk in place first.

He stated: “Most insured find it difficult to take up business interruption cover. Now it has opened our eyes that incomes can be lost as a result of interuptions like this. The operators need to change their marketing strategy to let people know more about insurances like the business interruption policy.

“They should carry out more publicity to get the general public informed on the benefits of insurance.”

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