MORE than 320,000 businesses in Scotland will have no form of insurance to cover them during the Covid-19 pandemic, The Herald on Sunday can reveal.
According to the Association of British Insurers (ABI), just 10% of firms across the country have business interruption insurance which covers pandemics and, of these, even fewer will have policies which include any "notifiable disease".
Businesses which do have specific disease cover are also struggling to claim funds, with politicians now calling for insurers to step up and stop “passing the buck” to avoid paying out those who believe they are entitled to a claim.
Analysis of official Labour Market Statistics, conducted by The Herald on Sunday, shows at least 53,000 registered firms in Scotland will have closed completely or been drastically affected by the pandemic, including all shops which sell non-food items, construction sites, hairdressers, cinemas, pubs, restaurants and sports clubs.
This does not include non-registered (sole-trader or partnership) firms, which make up almost half of Scotland's businesses, so the true figure it likely to be far higher.
Aside from those ordered to close or cease operations by the Government, many of the country's 356,550 companies will have lost staff due to illness, or furlough, while logistics are making it impossible for some manufacturing firms to deliver their products.
MPs from across the country say they have been inundated with messages from mainly small companies who have been denied payments by their insurers, and who cannot afford to take them to court to challenge their decisions.
Anecdotally, they say, some firms have been told the Covid-19 virus is not SARS and, as their policy is only valid for SARS, they could not claim. In another case, a different business was told the virus was SARS, but their policy excluded SARS and so they would not receive a payout either.
These discrepancies have prompted outrage from politicians, with several SNP members now writing to the head of the ABI, Huw Evans, demanding urgent action.
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Alyn Smith, SNP MP for Stirling, and John Nicolson, MP for Ochil and South Perthshire, are among those who wrote to Edwards this week explaining that they are “being contacted daily” about the issue.
Their letter states: “These businesses cannot operate, as per UK and Scottish Government instruction, and as a result have no income stream ... They remain extremely troubled by the potential closure of their business as a result of the stance taken by insurers.”
Smith said: “I raised the conduct of insurance companies in parliament weeks ago, and since, sadly, like all my colleagues have had dozens of constituents getting in touch about insurance companies either trying to get out of their obligations or being posted missing when they’re most needed.
“The insurance industry is in trouble, I get it, the scale of the losses over this pandemic are dwarfing anything the insurance or global reinsurance market have ever seen.
“I do think there is a need for the state to stand behind some or all of the policies to ensure people have certainty and am glad our Treasury spokesperson Alison Thewlis has been so active in pressing this case.
“But it is simply not good enough. Businesses have taken precautions in good faith and are finding their expensive policies to be worthless. We need to see the UK lose the laissez faire attitude and get in about these companies.”
Dr Liz Cameron, chief executive of the Scottish Chambers of Commerce, said that the SCC was aware of businesses facing problems with their insurers, adding: “Earlier this year, the Scottish Government and UK Government formally declared that coronavirus was a ‘notifiable disease’. This would normally help companies seek compensation through their insurance policies in the event of any cancellations they may have to make as a result of the spread of the virus.
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“We urge businesses to engage directly with their insurer or broker to discuss and confirm the type of cover that they have purchased and whether or not it covers coronavirus. This pandemic is an unparalleled crisis in modern times and we urge insurers to be as collaborative and supportive as possible.’’
However, the ABI says that, while insurers are preparing to pay out up to £1bn in total to cover travel, retail and entertainment industries, they simply cannot be responsible for funding everyone who has lost out during the pandemic if they do not have policies which cover them.
The body is also calling for talks with the Government on how to make pandemic cover more affordable for all firms, in case such an unprecedented situation arises in the future.
An ABI spokesman said: “Insurers understand that this is a very worrying and uncertain time for all businesses. Some businesses may have bought pandemic insurance that will pay out for Covid-19 but most will have not.
“It is expected that coronavirus-related claims will be well in excess of £1 billion in the UK spread over at least a dozen different types of insurance, including cover for business.
“No country in the world is able to offer widespread pandemic insurance. If insurers paid out for cover that wasn’t included in contracts it would be a shortcut to their insolvency. For pandemic insurance to be more widespread, there needs to be some form of government support. Once we are through this we need a debate about how this can best be achieved.”
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Watchdogs the Financial Conduct Authority and the Financial Ombudsman Service said they were aware of the problems affecting firms, with the FCA confirming they had already started receiving complaints about insurers failing to pay out.
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