370,000 small businesses hit by coronavirus lockdown could be due insurance payout after landmark court ruling
HUNDREDS of thousands of small businesses could receive a payout from insurers if they have been hit by the coronavirus pandemic.
Until now, insurers had been refusing to pay out for disruption caused by lockdown, such as temporary closures, arguing policies didn't cover pandemics.
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But following the landmark ruling by the High Court today, the Financial Conduct Authority (FCA) said insurers should now pay out on future claims and reassess ones that have previously been rejected on these grounds.
It's estimated some 370,000 policyholders are affected by the ruling, although not everyone is guaranteed a payout as it still depends on the exact wording of the policy.
For example, your claim might be rejected if you shut shop despite being on the government's essential retailers' list meaning you could have stayed open.
Claims are expected to total around £1.2billion, according to the regulator, which works out as £86,500 on average based on all 370,000 firms getting money back, although payouts will differ depending on the loss incurred and the policy.
What help is out there businesses and for self-employed workers?
THE government has introduced the following measures to help self-employed workers and businesses during the coronavirus outbreak:
Income-tax deferrals: Self-assessment income tax payments, that were due in July, can be deferred to the end of January next year.
Rent support: Businesses who are struggling to pay their rents are protected from eviction until the end of June.
Coronavirus business interruption loan scheme: SMEs can get loans and overdrafts of up to £5million for up to six years and the government will guarantee up to 80 per of these.
Grants of up to £10,000: Small firms can get grants of up to £10,000 to help with ongoing business costs.
VAT payments: VAT payments can be deferred for three months.
Tax bill help: SMEs that cannot afford their tax bills can ask HMRC for a “time to pay” arrangement so any debt collection is suspended.
Business rates holiday: A 12-month business rates holiday has been introduced for many businesses.
Am I due a payout?
The key issue here is that some insurers denied claims arguing the cover for "disease" didn't include the coronavirus pandemic.
But the court today ruled that policies should cover the pandemic in most cases if they insure against diseases.
The court also said "denial of access" insurance, which is a legal term for when you can't physically access your business due to an incident at the premises or within the local area, should also cover the pandemic.
But before making a payout, insurers will take into account whether your business was ordered to close completely, or if it was included on the "essential" list but you decided to close down anyway.
There is also a strong chance that insurers will appeal the decision at the Court of Appeal, which could see the ruling overturned.
The FCA brought the case to the courts in May to get legal clarification over the wording of business interruption (BI) insurance policies.
Eight insurers agreed to assist the FCA by taking part in the eight-day hearing that took place in July.
These were Arch Insurance (UK) Ltd, Argenta Syndicate Management Ltd, Ecclesiastical Insurance Office Plc, MS Amlin Underwriting Ltd, Hiscox Insurance Company Ltd, QBE UK Ltd, Royal & Sun Alliance Insurance Plc and Zurich Insurance Plc.
The FCA said there was "widespread concern" over "the lack of clarity and certainty" for businesses seeking to cover substantial losses incurred because of the national lockdown.
The rulings apply to all UK insurance firms, not just the eight identified in the case.
The FCA hopes today's result will help set out the framework for how insurance companies should respond to claims going forward.
The FCA says that policyholders with affected claims can expect to hear from their insurer within the next seven days.
'Insurers should now progress claims'
Christopher Woolard, interim chief executive of the FCA, called it a "significant step" in resolving the uncertainty over coronavirus BI claims.
He said: "Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgement says should be paid.
"They should also communicate directly and quickly with policyholders who have made claims affected by the judgement to explain next steps."
Money saving tips for microbusinesses
HERE are some ways you can help your finances if you own a small business.
1. Forecast cash flow. To save money, you first need to know where it’s going and when it’s coming in. Sitting down with a simple spreadsheet to plot different financial scenarios can be just as effective as sophisticated cash flow software.
2. Access financial support. If you do have a shortfall to meet, consider applying for a Bounce Back Loans and Business Interruption Loans. The government’s new Job Retention Bonus might also help make it more affordable to retain staff. Just remember that any extra debt you take on will need to be paid back.
3. Cut costs. Reshaping a business can mean extra costs, so interrogate all your spending to see if there are new ways to save – even if it’s how much you spend on milk.
4. Shop around. If you have costs coming up for renewal, take the time to search for deals. You may find discounts through business price comparison sites, partners, member bodies, or referral schemes.
5. Save energy, save money. Energy usage is one of the expenses microbusinesses are most likely to estimate. Rather than estimate, you can identify ways to reduce your consumption and therefore save money by getting a smart meter installed. Contact your energy supplier to find out if your microbusiness is eligible for an installation.
6. Negotiate openly. If you are really struggling, don’t suffer in silence. Speak to your accountant, or HMRC, about taking up the current offers to defer tax payments like VAT to aid cashflow.
7. Embrace digital. As well as making your business more efficient, tech can help you to do some things yourself rather than outsourcing them. Use basic free options of websites like Canva to create graphic designs or try out Facebook’s new Shops feature. Check out what support you can access via any existing digital partners such as Google’s SME ad credits or the American Express Shop Small offer.
8. Find support groups. The pandemic has been overwhelming for many businesses, so it’s important to make sure you have the right support. Many business schools offer free support through their networks, particularly those belonging to the Small Business Charter.
Huw Evans, director general of the Association of British Insurers (ABI), said that it was "complex judgement" and that it will take some time before insurers decide how it will impact their customers and whether to appeal.
He said: "We recognise this continues to be a difficult time for many businesses, small and large, and for society as a whole.
"That is why insurers have made a range of commitments to help both businesses and individual customers through the crisis and why the industry expects to pay out over £1.7bn in Covid-19 claims."
Mr Woolard added: "If any parties do appeal the judgement, we would expect that to be done in as rapid a manner as possible in line with the agreement that we made with insurers at the start of this process.
"As we have recognised from the start of this case, thousands of small firms and potentially hundreds of thousands of jobs are relying on this."
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