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Law360, London (May 27, 2020, 12:59 PM BST ) The government should offer a "significant" level of support for offering affordable pandemic cover to small businesses, the Association of British Insurers said, as the industry considers whether to create a state-backed reinsurer to deal with the crisis.
The ABI's director general, Huw Evans, said in a letter published Tuesday that losses to companies forced to close during the lockdown are not covered by business interruption policies, which would have been priced many times higher if they provided cover for pandemics.
Evans was responding to an open letter published at the beginning of May by the Covid Claims Group, which has been signed by more than 800 businesses. They are calling for insurers to pre-empt impending court cases and pay out on claims now.
But Evans said Tuesday that doing so would be a breach of fiduciary responsibilities.
"Where I do agree with you is on the need to find better solutions, so insurance coverage can be more widespread in the event of a future pandemic," he wrote. "For such insurance to be affordable to [small and midsized enterprises] that would likely require significant levels of state support."
The lobby group is working with the government on a "better future position" for pandemic insurance than that currently available. A steering group has been created under the state-backed terrorism reinsurer, Pool Re, to examine how the industry can better respond to pandemics.
Lloyd's of London confirmed two weeks ago that the proposals involved the creation of a specialized reinsurer, known as Recover Re, which would offer cover to companies for business recovery, including during the current crisis.
A spokesman for the ABI declined to comment on whether the trade body had lobbied the government to release funds from the £6.6 billion ($8.1 billion) of Pool Re reserves to meet claims over business interruption from the coronavirus crisis.
Insurers have come under fire for refusing to pay out on such claims, even when policies offered protection from closures relating to the outbreak of an infectious disease.
Evans said in Tuesday's letter that extensions for infectious disease on business interruption policies were not intended to cover losses from a pandemic.
"The proof of this rests in the prices charged to SMEs: providing insurance coverage specifically against pandemics is a specialist and expensive form of insurance typically sold in the Lloyd's market," he said.
"If insurers were including this type of risk as standard in the policies you and your co-signatories had bought, you would have been charged many multiples of the price you paid, given the huge liabilities involved in shutting businesses for indefinite periods," Evans added.
--Editing by Ed Harris.
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