Business interruption insurance claims and COVID-19: what you need to do
- The outcome of ‘test cases’ before Australian courts should clarify whether business interruption insurance policies cover losses from the COVID-19 pandemic.
- Small businesses should contact their broker or insurer and ask whether their policy covers COVID-19–related losses, or could, depending on the outcome of the test cases.
- If you think you could be covered, guidance is available to help you prepare your claim and calculate losses.
Check your insurance cover
If you run a small business, hold business interruption insurance and have been affected by the COVID-19 pandemic, talk to your broker and consider whether your policy covers COVID-19–related losses. If you do not have a broker, speak to your insurer.
There are two ‘test cases’ currently before Australian courts that should provide greater clarity about whether insurance policies will cover business interruption losses from the COVID-19 pandemic.
What you need to prove your claim
If you think your insurance policy covers COVID-19–related losses (or may, depending on the outcome of the test cases), start collecting evidence now to prove your claim and calculate your losses. Collecting the evidence now, while it is still readily available, will help make the claims process easier.
The Australian Financial Complaints Authority (AFCA) has information about establishing business interruption loss due to COVID-19.
If you have a broker, also ask them what evidence you should collect.
When an insurer is considering your claim and calculating your losses, they are likely to compare your financial situation in a normal year with your situation during the period you are claiming coverage for. It is likely that you will need to provide evidence which covers the period you are claiming coverage for, as well as the 12 months prior to that period. This evidence could include trading statements, profit and loss account statements, payroll documents, and receipts of additional costs.
If you have a claim underway, check with your broker or insurer to make sure you have provided everything the insurer needs to assess your claim. Your insurer should also be updating you about the progress of the test cases currently before the courts and any effects on your claim.
When will your claim be decided?
Insurers will generally wait until the test case outcomes are known before they decide on claims. This is expected to take some months.
Insurers have agreed that, because of the passage of time associated with waiting for an outcome of the two test cases, they will not rely on any time limits to lodge a claim set out in a policy, or seek to avoid liability where the policy holder is insolvent.
What ASIC expects of insurers
ASIC expects insurers to handle all claims in a manner that is consistent with their legal duty of utmost good faith. Recent judgments of the Federal Court of Australia in cases brought by ASIC found this means that insurers should handle claims in-line with ‘community expectations of fairness and decency’ and with ‘full and frank disclosure, clarity, candour and timeliness’.
ASIC is working with stakeholders including AFCA and closely monitoring the situation to help ensure insurers treat policyholders fairly and assess claims in a consistent, transparent and timely way.
If you're unsure about your business insurance coverage, speak to your insurance broker or directly to your insurer. Seeking advice early can help you to better understand your options.
Help is available (at no cost) from a specialist financial counsellor at the Small Business Financial Counselling Support Line website or phone 1800 413 828.
ASIC is Australia’s corporate, markets and financial services regulator.