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Law360, London (March 3, 2021, 1:34 PM GMT) -- Hiscox acknowledged on Wednesday that its reputation has suffered after a high-profile court ruling on business interruption cover, which shone a light on the refusal by insurers to honor claims made by companies forced to close during Britain's COVID-19 lockdown.
The insurance giant said it will seek to rebuild trust in its business, as it begins to pay out on claims to 34,000 policyholders who were affected.
London-based Hiscox Ltd. was one of eight defendants in the test case, brought by the Financial Conduct Authority on behalf of an estimated 370,000 small businesses. The U.K. Supreme Court ruled in January that insurers were liable to pay out to most policyholders with business interruption policies that had "non-damage" clauses.
The policies for disrupted business often provide cover only if a company has to close because of physical damage to a property.
"Hiscox has undoubtedly suffered some brand damage this year," Chief Executive Bronek Masojada said as the insurer posted a $268.5 million loss for the year to the end of December, down from a profit of $53.1 million in 2019.
"We clearly regret the uncertainty and anguish that the dispute has caused to our customers, so it is important that we learn from this experience," he added.
The company said it would pay a total of $475 million in claims linked to the pandemic, with most for event cancelation and business interruption. Hiscox said it would have made a profit of $207 million last year without the impact of COVID-19.
The company's combined operating ratio – a measure of underwriting success – was 114.5% for 2020, up from 106.8% in 2019. A combined ratio of over 100% indicates an underwriting loss, while a figure below 100% reflects a profit.
Hiscox's business interruption policies were often sold with extensions that offered cover if a company was forced to close as the result of an outbreak of a notifiable disease.
Masojada said on Wednesday that the policies were not designed to provide cover for global pandemics, but local outbreaks instead. He said the company has reduced its exposure to further claims by not allowing policies with the old wording to renew. The company will have fully "run off" exposure to COVID-19 claims by the end of June 2021, he added.
Insurers are increasingly introducing exclusions linked to COVID-19 to their policy wording, a trend that has prompted regulators to warn of a growing "protection gap" over the virus.
--Editing by Joe Millis.
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