Sadly, the same cannot be said with the present pandemic crisis. All too often, the insurance industry has embraced the role of pantomime villain in the eyes of its customers, regulators and lawmakers.
Principally, this has meant issuing policies with unclear or overly legalistic wordings and not paying claims to policyholders who honestly believed they were covered.
A year ago – when the idea of closed borders and lockdown measures backed by criminal sanctions was fast-approaching but still inconceivable to most of us – this publication warned of the reputational pitfalls insurers faced if they became associated with not paying Covid-related claims.
On 2 March 2020, we were struck by an article that appeared in the UK newspaper the Daily Telegraph reporting Hiscox’s results.
Under the headline “Insurer Hiscox warns wave of coronavirus cancellations will not be covered”, the newspaper exclaimed: “Hundreds of firms behind sports matches, concerts and trade shows could be landed with huge losses because their insurance will not pay out for cancellations due to coronavirus, the boss of Hiscox has warned”.
The Insurer’s view then – as it is now – was that at times of crisis, insurers should remember the legacy of legendary Lloyd’s underwriter Cuthbert Heath.
Upon hearing the news that the fast-growing city of San Francisco has been devastated by the 1906 earthquake, he famously instructed the local Lloyd’s agent to “pay all of our policyholders in full, irrespective of the terms of their policies”.
Heath’s actions meant Names paid out more than $1bn in today’s money – an astonishing sum considering San Francisco was seven thousand miles from Lime Street and non-marine/property insurance a relatively immature market. At the time, it was calculated to be the equivalent of more than one hundred years of premiums. Heath could never conceive of the loss being recovered by future premiums in his lifetime.
But it proved to be an act of genius. Heath ensured that Lloyd’s became synonymous with paying claims and supporting its customers at times of distress just as America’s industry and enterprising spirit was poised to dominate the global economy throughout the 20th century.
The lesson, we suggested, is not that insurers should pay out on claims which are clearly invalid (or fraudulent) but where the picture is unclear and where there is distress and the prospect of hardship, insurers should lean towards payment. They should have faith that their goodwill and trust will be repaid in ways that can’t be simply measured on a spreadsheet. “Pay when grey” is an axiom to remember.
Sadly, the spirit of Cuthbert Heath has been absent too often this past year – especially when it comes to the thorny issue of business interruption (BI) cover for enterprises forced to close because of the restrictions that most governments have imposed upon their citizens to varying levels these past twelve months.
Confronted by a wave of BI claims from their struggling customers, all too often insurers took the view they were not covered. The inevitable consequence was gruesome headlines as owners of small businesses complained vociferously of their treatment. Criticism by politicians, lawmakers and opinion-formers followed, together with a myriad of legal suits and court actions.
In the UK, this even led to the extraordinary sight of the Financial Conduct Authority taking eight insurers (including Hiscox) which it regulates to court. The FCA estimated that almost 400,000 SME businesses were affected – and that was just in the UK.
And despite sympathetic case law, the English Commercial Court largely ruled against the insurers – and their ruling was recently upheld by the Supreme Court, the highest Court in the land.
Which brings us to the present. Yesterday, The Sunday Times published another article that puts the industry in a poor light.
Headlined “Café owners’ fury over £13 payout from Hiscox”, the article claims the insurer “failed to pay its first tranche of compensation to a group of businesses forced to close due to Covid-19” despite the Supreme Court decision.
It used the example of an East London cafe owner who was allegedly offered a mere £13 for more than three months of closure during which it paid £1,600 a month rent in full and lost £2,500 of stock. “We’ve been battling bankruptcy,” the owners told the newspaper.
We do not know all the facts and it should be noted that the body behind the article – the Hiscox Action Group – is a well-organised and media savvy outfit. But either way, the article is yet another dent in the industry’s reputation.
And this really matters. Not just in the obvious way that all companies need to be sensitive to their customers’ views. But also because the industry needs to have governments and regulators on its side. The Insurer wonders, for example, whether the UK industry may have received a warmer ear from Downing Street when it proposed a Pandemic Re solution last year which was stonewalled last summer.
Yet, there are also positive signs and examples of the industry not being flat-footed. The Insurer was impressed, for example, by the actions of the Swiss insurer Helvetia last year when it swiftly struck a compromise settlement with its restauranteur customers to avoid legal actions.
And a more recent example occurred last week when we reported that Lloyd’s has reignited work on its ReStart initiative which could lead to a simple, parametric based product for UK SME businesses.
Of course, there is no guarantee that ReStart will come to fruition (the details are available here). But The Insurer applauds Lloyd’s CEO John Neal and the various companies involved (including Ascot Underwriting, the MMC companies Guy Carpenter and Oliver Wyman and Aon) for trying.
The industry – UK and globally – needs good headlines. Yesterday’s Sunday Times article was another reputational dent that may have been avoided if the industry remembered Cuthbert Heath…
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