Throughout the past year, businesses have been asking whether their insurance policies will cover them for damage done by the Covid-19 pandemic. Unfortunately, the answer is complicated. So, we’ve created a guide to pursuing business recovery through franchise insurance.
Over the past 12 months, some business owners have been forced to close their doors and spend long, empty days at home. Others have been busier than ever, working to maintain profitability during an increasingly gruelling year. But either way, there’s still time to claim on your franchise insurance.
What is franchise insurance?
Franchise insurance is much like any other form of business cover, but often contains several policies combined to form one bumper package. Usually a franchisor tells their franchisees which types of insurance they need when they join the company, but some are optional, and down to the individual investor.
Business interruption insurance is one of the most important types of policy. It’s designed to protect you when you’re forced to stop trading, and normally covers damage from fires, floods and vandalism, as well as equipment breakdown or theft. Certain insurance products also provide compensation if employees or customers can’t reach your premises, you’re affected by a cyber attack or one of your suppliers’ properties is damaged.
What does franchise insurance cover during the Covid-19 pandemic?
Many businesses hoped their franchise insurance policies would protect them against damage inflicted by the Covid-19 pandemic. Unfortunately, while certain providers have given some financial support, most packages don’t cover problems arising from the coronavirus crisis.
Many franchisees have turned to their business interruption policies for help, but this insurance usually only offers protection under a specific set of scenarios. It’s rare for insurers to cover forced closure by the authorities.
Why? As the virus is so widespread, most insurance firms wouldn’t be able to afford to deliver the financial packages businesses are demanding. So, it’s down to the government to provide support with grants and loans. Some franchisors have also recognised the need to lower or pause fees as a result of the pandemic.
We will be working with insurers to ensure they now move quickly to pay claims the judgment says should be paid, making interim payments wherever possible. Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.
—Sheldon Mills, Executive Director, Consumers and Competition at the FCA
>> Read more about: Small Business Insurance
Specific ‘disease’ and ‘prevention to access’ clauses
Some businesses may have taken out extra ‘add-on’ insurance policies, covering ‘disease’ and ‘prevention to access’, and people are now hoping these specific clauses are relevant to the pandemic.
Recently, the Supreme Court investigated whether insurers should pay out for policyholders. It examined 21 policy types, and 14 could potentially apply to businesses during the pandemic.
We’ve highlighted the Supreme Court’s findings below, but it only reviewed 21 policies across six insurers - a small portion of the 700 packages currently issued by 60 firms. So, it’s vital you look closely at the wording of your own insurance products, consult an independent legal advisor and refer to your franchisor if you need extra help.
1. Disease clauses
Most insurance companies say they’ll “indemnify [pay] the insured… for such interruption as a result of any occurrence of a notifiable human disease within 25 miles of the premises”. Covid-19 was declared a “notifiable disease” on the 5th March 2020, but the Supreme Court decided the policies did not apply to cases outside of a business’s 25-mile radius.
So, you’ll probably need to be able to prove there was at least one case of coronavirus in your local area to qualify for insurance cover.
2. Prevention to access clauses
Some insurance policies say they’ll cover business owners if they’re prevented from accessing their premises.
The Supreme Court said companies must have been completely unable to use them, as opposed to just experiencing an obstacle. However, it agreed insurers should pay out for businesses forced to stop trading by the government - even if they could launch additional revenue streams, such as virtual or delivery services.
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How to make an insurance claim
If you think your policy covers you for the pandemic, you should check your policy document, as it should tell you how to make an insurance claim.
Then, get in touch with your insurer, broker or advisor. You may also want to consult an accountant, who will be able to help you calculate your business’s losses, increased cost of working and any other relevant details.
You may struggle to make a claim:
- If you can’t prove there was a case of coronavirus within the geographical radius specified in your policy
- If you’ve lost your contract or other relevant documentation
If your insurer refuses to accept your claim or treats you unfairly, there are several ways you can reach a resolution:
- Pursuing a negotiated settlement
- Court proceedings as a private party
- Registering a complaint with the Financial Ombudsman Service for free
You also have the option of talking to your franchisor. Some have supported their franchisees throughout the pandemic and even granted concessions for those affected by the virus.
What kind of insurance claims can you make for the Covid-19 pandemic?
You may not be able to reach any sort of understanding with your insurer. So, what kind of claims can you make for the pandemic? Well, you may be eligible for protection through the following types of cover:
- Public liability and employer’s liability insurance - If any of your customers, clients or employees think they contracted coronavirus on your premises as a result of inadequate protection or provisions, they might make a claim against you. Public and employer’s liability insurance may cover payments like these.
- Cancellation insurance - If you’ve lost money because you’ve been forced to cancel events, you could claim on this kind of insurance. Usually, it only covers cancellations for particular reasons, and for irrecoverable expenses.
- Trade credit insurance - If a customer or client has been unable to pay you, trade credit insurance could help you recover the debt.
Nurturing business recovery during the UK reopening
Hopefully, this guide has given you the information you need when it comes to pursuing franchise insurance claims during the pandemic. Start by reading your insurance policies and consulting your franchisor to discuss your options. We always recommend getting in touch with independent advisors too, as they’ll have plenty of experience and handy tips to help you reach the best outcome.
Find more guidance on running a franchise unit and navigating the UK’s economic recovery with our other business articles.
Alice Tuffery, Point Franchise ©