Lloyd’s Of London Expecting To Pay Out £5 Billion In Covid-19 Related Insurance Claims

The world’s largest insurance market, Lloyd’s of London, yesterday stated that it is anticipating having to pay out up to £5 billion in insurance claims due to the financial impact of the coronavirus pandemic.

The insurers that operate in the Lloyd’s of London insurance market are paying out claims as a direct result of the coronavirus pandemic in 16 different insurance areas, which primarily relate to event cancellations but also medical negligence, trade credit, travel cancellations and business interruption policies.

However, there are a number of Court cases currently taking place which are attempting to get some insurers to pay out for losses which are as a direct result of the pandemic, which the insurers are disputing.

The Chief Executive of Lloyd’s of London, John Neal, stated that the first half of 2020 has been “exceptionally challenging”, adding:

“The pandemic has inflicted catastrophic societal and economic damage calling for unparalleled measures to stifle the spread of the virus, and to get businesses and economies back on their feet,”

Lloyd’s of London also commented that coronavirus related insurance claims amounted to £2.4 billion in the first half of the year, following reinsurance recoveries. This has led to a £400 million loss for this six month period, compared with a £2.3 billion profit during the first half of 2019.

While Covid-19 related insurance pay outs could amount up to £5 billion, Lloyd’s of London reinsurance will cover £2 billion of this amount. However, the financial losses brought about by the pandemic could continue for some time to come.

Financial Conduct Authority’s (FCA) business interruption insurance policies test case

Many businesses that were forced to close as a result of the Covid-19 crisis have made claims for the substantial financial losses they have suffered under their business interruption insurance policies. However, as previously mentioned, policyholders who believe they have valid claims, are reporting that these have been rejected by their insurers.

In July, the FCA took action and brought forward a test case that aims to provide some much needed clarity and certainty for policyholders and insurers. Whilst the test case will not provide a comprehensive solution to business interruption disputes, it is likely to settle some very important points of principle and its ramifications are likely to be felt outside business interruption and in other wider areas of insurance law.

John Neal commented on the test case on the BBC’s Today programme that it would be:

“good for customers, and good for the industry, so everyone knows exactly where they stand as to what is covered and what isn’t covered”.

Mr Neal added that the risks to insurance companies of an unfavourable ruling is “in the hundreds of millions, not the billions”. He further commented:

“The reality is, and it’s unfortunate, the vast majority of policies do not provide cover for this type of loss, and we’re as bothered by that as anything, to try and make sure that next time around, whatever the event, customers have had the opportunity to buy the right products and services.”

The judgement in the test case is set to be announced on Tuesday 15^th September at 10.30am. For further information on the case and business interruption insurance policies, click here.