With the pandemic leading to income losses for many businesses, some owners have turned to their business interruption (BI) insurance to provide compensation, only to find pandemics are generally excluded.
This situation has resulted in businesses, especially within the hospitality industry, bringing lawsuits against insurers. These include a test case in NSW that found against insurers on the basis of policy definitions, which could lead to insurers having to pay out on multiple claims.
As a result, insurers are becoming more reluctant to offer BI cover. According to an article in Business Insurance Australia, finding BI coverage in the future is “only going to get harder”.
But even before the pandemic, the insurance market was hardening. During a hardening phase, the cost of insurance tends to rise. The current hardening cycle has been caused by several factors – including low interest rates, litigation decisions, and higher losses from disasters such as bushfires.
What does this mean for Australian businesses?
Essentially, this means businesses that already have BI cover in place should hang onto it, because it may be very difficult to secure in the future. It also means that insurance prices could continue to creep up for some time to come.
Businesses unable to get BI insurance may need to consider what other buffers they can put in place to minimise losses in a situation where they need to close for a period of time.
Speak with your local Reliance Partner to find out more.