Covered for plague but not Covid: Report slams failings of ambiguous insurance

A report from Mactavish, the UK-based insurance and claims consultant, says a surge in disputed coronavirus business interruption claims shows how insurance policies offered to all sectors have become standardised, and inadequate to companies’ particular needs. 

The report, "Manufacturing Confusion", complains of contradictory and ambiguously worded policies that mask an attempt to sell one-size-fits-all offerings that end up leaving the insured exposed to risks they thought were covered.

It gives the example of a complex test case on business interruption brought recently by the UK’s Financial Conduct Authority in the London High Court. 

"Some of these standardised policies are so complex that the finest legal minds in the country can’t disentangle exactly what they mean in practice," said Mactavish chief executive Bruce Hepburn.

He said the basis for these standardised policies is often "unnecessarily complex" and poorly understood by the policyholder. 

"With Covid-19 for example, many companies find they are covered against bubonic plague but not against new diseases like coronavirus," he said.

He blamed the tendency to offer generic policies, in part, on a decline in the skill and knowledge of underwriters and brokers. The contracts they write often contain loose wording that allows different inferences to be drawn. "This is the rule, not an exception," he added. 

The poor drafting is allowed to pass because most clients and brokers do not understand the legal language used, nor the effect of multiple, often contradictory, endorsements, extensions, exclusions, definitions, conditions and "side letters".  

Furthermore, a lack of investment in technical skills in UK insurance broking and underwriting has made it much harder to amend policies to meet the specific needs of clients. 

Mactavish warns that these generic policies are rolled out across vast distribution networks, and sold to clients with little regard to their sector, size or individual characteristics. 

Photograph: The Royal Courts of Justice, London, where a high-profile test case on business interruption insurance was heard (bortescristian/CC BY 2.0)

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