LONDON: Although disputes around non-damage business interruption (BI) cover, which made 2020 a difficult year for U.K. commercial property insurers, should subside in 2021, challenges remain for a sector that needs to rebuild its reputation among its small- to medium-sized enterprise (SME) clients.
In a new Best’s Commentary, “UK Commercial Property Insurers —Looking Beyond a Difficult 2020,” AM Best explains that actions taken to more clearly define BI cover during 2020 should mean the majority of COVID-19-related exposures will have run-off soon after the anniversary of the initial lockdown in March.
These actions should lead to significantly better claims experience in 2021, as pandemic cover will be excluded in most cases.
However, disputes over BI cover have highlighted the potential for a gap between the insurer’s and the customer’s understanding of what is covered by the insurance contract when policy wording is not sufficiently clear.
AM Best believes it is important that transparency is improved and that there is greater clarity as to what is covered in a BI policy so that insureds understand exactly what they are buying cover for.
In response to January’s U.K. Supreme Court judgment, affected insurers are expected to increase their COVID-19-related BI loss estimates. Most have presented their estimates net of reinsurance, indicating that they expect to make recoveries on their reinsurance programmes.
Possible disputes with reinsurers loom and it will be some time before insurers realise the exact cost of the pandemic on their commercial property books.
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