Coursework Brief:
The supplementary assessment for this module is a 2,000-word essay (excluding any citations, references, tables, figures and charts) worth 100% of the module mark.
The essay question follows after this background information which is intended to help you focus your answer:
The ongoing COVID-19 crisis has heavily squeezed the global economy. Reviewing the health of the UK economy, McKinsey reported that the earnings of small and medium size firms, in particular, have severely been impacted and the worst is yet to come. In order to protect losses of earnings from uncertain events, some insurance policies offer coverage from business interruption (BI). It is reported that many policyholders whose businesses were affected by COVID-19 lockdowns eventually suffered significant losses, resulting in large numbers of insurance claims under BI policies.
The Association of British Insurers predicted that UK business interruption claims could reach at £900 million during the first lockdown 2020, and the full loss is yet to emerge. It is apparent that the wordings of business interruption clauses in insurance policies are often ambiguous on the point of whether the government’s lockdown decisions in order to control the coronavirus pandemic can be classified as legitimate insurance peril. This ambiguity arguably triggered non-payment of a large number of business insurance claims by some UK insurers.
On 14th January 2021, the UK Supreme Court ruled that policies do provide cover against impacts of virus and lockdown measures. The business community welcomed the court judgement as a landmark verdict, on the grounds that it partially protects the survival of many SME businesses. Appreciating the judgement, one member of the public commented “if you have an insurance policy and your insurers do not want to pay something like this then what is the point of buying insurance. If the policyholders did not win the case, then they will eventually lose all trust and confidence in their insurers”.
Commenting on the insurance business model one insurance professional quoted “In principle all insurance contracts are grounded on the trust between insurer and insured. In order to build and maintain trust, insurers always try to pay genuine claims as per contract and try to avoid disputes with the insureds”. Whatsoever, this case is regarded as one of the few exceptions where a group of insurers decided to go against the national interest where a large number of SMEs are the victims of a prolonged global pandemic.
In light of the economics of insurance as well as the fundamentals of pricing risk, you are required to write an essay criticising the decisions of some insurers to deny such business interruption claims for UK SMEs.
Your essay should also discuss the potential changes in the market of business interruption insurance as result of this court ruling.
