COVID-19 is not only a global health emergency but the cause of an economic tsunami. The once-thriving UK hospitality sector has been among the worst hit by the pandemic, while controversy with business interruption payouts continues. A circuit breaker – a ‘mini-lockdown’ designed to curb the rise in COVID-19 cases – would only aggravate the situation for the sector, leading to more insurance claims and potentially more policy cancellations.

Cover for pandemics is not customary in commercial insurance, but the more comprehensive business interruption policies will provide cover for non-standard causes such as notifiable diseases.

According to GlobalData’s 2020 UK SME Insurance Survey, nearly half (47.1%) of SMEs operating in the hospitality and restaurant sector cited having business interruption insurance.

In addition, almost a fifth (18.4%) of businesses in this sector reported they had cancelled their business interruption policy as a result of the pandemic.

Cases are rising rapidly again, and the UK faces new restrictions. With pubs and restaurants mandated to close again in Scotland and Northern Ireland for several weeks, and Wales considering implementing a circuit breaker, pressure to follow the same path is mounting in England. Businesses in the hospitality sector may be forced once again to fight for COVID-19 payouts, and insurers will be hit with a second wave of claims to deal with.

The High Court’s recent ruling in the test case brought by the Financial Conduct Authority determined that SMEs may be entitled to compensation from the disruption caused by the outbreak of the virus. While this is open to appeal, the ruling made it clear that depending on the policy wording, insurers could be liable for claims resulting from the government-imposed lockdown.

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Initially, insurers refused liability for COVID-19 claims, alleging that business interruption policies were not intended to provide cover for lost income due to pandemics nor cover government-imposed lockdowns. But the ruling will encourage more policyholders to make claims, or to make additional claims should premises be enforced to close once more. Thus, insurers could face a double bill without having even settled the first one.

The length taken to receive compensation will leave businesses frustrated, prompting more businesses in the hospitality and restaurant sector to cancel policies with their existing provider. A circuit breaker may be the answer, but it may not be for insurance.