Business valuers often ‘tic the box’ on property and casualty insurance policies as part of their management interviews. P&C coverage normally includes some sort of business income replacement or business interruption (BI) policy, and a company without these obvious risk management tools in place might logically have a lower fair market value than a comparable enterprise.
However, the COVID-19 crisis has revealed last-minute efforts by UK insurers to rewrite policies to omit coverage of biological risks such as pandemics. In addition, since most policies only replace lost income (specifically not lost turnover), and many smaller UK companies are currently operating at a loss, business interruption insurance has turned out to be a wasted investment—and hasn’t reduced risk at all.
Income replacement insurance schemes are now garnering more attention than they have in years, particularly because of the legal action against AXA, Zurich, RSA, and others on behalf of small hospitality businesses whose legitimate business interruption claims have been rejected. This follows a first action against Hiscox by a separate group of small-business owners. The big insurers simply say that BI coverage almost never protects against pandemics.
“This is an insurance product that never allows a claim,” one business owner north of London says. For business valuers, it would be hard to argue that a lack of business interruption coverage somehow increases risk, or decreases value.
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