Hiscox ILS funds not exposed to UK SME business interruption claims

Insurance and reinsurance firm Hiscox Group has stated that none of the insurance-linked securities (ILS) funds under management of its Hiscox Re Insurance Linked Strategies Ltd. unit hold any exposure to the insurers UK SME business policies, which are the subject of some legal claims as a result of the coronavirus pandemic.

A number of UK business insurers are currently facing legal action as business owners try to make claims for coverage due to the business interruption caused by the Covid-19 coronavirus pandemic.

Some of the claims cite the fact that the insurance is supposed to cover them should their business premises become inaccessible due to an order from a public authority, but in the case of the coronavirus pandemic this hasn’t actually occurred as premises can still be accessed, even though businesses have been encouraged to shutter and work remotely where they can.

Hiscox’s small and medium enterprise business and property insurance policies are the area of focus here, but the re/insurer said that these are not a part of its business that is ceded through to any of the ILS and collateralised reinsurance investment funds that it operates.

Hiscox has a range of ILS and reinsurance-linked investment funds, including some that allocate capital into primary property insurance risks and a range of classes of insurance exposure.

But it seems the Hiscox ILS funds will be safe from any potential impact due to coronavirus related business interruption claims, as a spokesperson told us, “There is no exposure in any of the ILS Funds to the Hiscox UK SME business.”

Hiscox further explained its position on the legal cases that have been filed:

We understand that these are incredibly difficult times for businesses affected by Covid-19. At Hiscox we strive to pay claims that are covered by the policies we issue fairly and quickly. However, general business interruption policies across the industry, including Hiscox’s, were not designed to cover the extraordinary circumstances caused by this pandemic. 

The Public Authority clause you refer to is designed to cover losses resulting solely and directly from an interruption caused by an inability to use insured premises due to restrictions imposed by a public authority. This means that in no case would it cover losses that would have arisen even if the premises could have been used or accessed, such as those suffered as a result of the wider economic slow-down following the actions the Government has taken requiring people to stay at home. It is triggered following the happening of certain specific events at, or local to, the premises, for example; a murder, an occurrence of a contagious disease that must be notified to the local authority, food poisoning, problems with the drains or vermin. For example Legionnaire’s Disease which requires the policyholder to notify the local authority and shut access while it is professionally cleaned.

The government’s decision to impose social distancing preventative measures to stop the spread of Covid-19 across the country is not directly aimed at limiting access to an individual business’s premises, or any particular business premise. Like terrorism and flood, which have government-backed insurance schemes, pandemics like coronavirus are simply too large and too systemic for private insurers to cover.

As you would expect we take all complaints very seriously and investigate them thoroughly.

As we’ve explained, legal action to force business interruption claims into a range of business lines, including property insurance towers and even property catastrophe reinsurance programs, have been seen and are increasing in prevalence.

While legal experts believe there are a number of case law precedents that could mean re/insurers end up taking more business interruption claims than initially thought, still there is a belief that the potential scale of this issue makes it one where governments will have to step in.

Just today, our sister publication Reinsurance News has reported that the UK’s Financial Conduct Authority (FCA) told insurance and reinsurance company CEO’s that it believes most policies “do not cover pandemics and therefore would have no obligation to pay out in relation to the Covid-19 pandemic.”

It seems that absent some kind of legislative push to force payments of claims, policyholders will be dealt with on a case by case basis and the wording or exclusions in their policy will define whether they can receive any business interruption payout, or not.