Insurance Daily News

Why Precautionary Protest Closures Trigger Business Interruption Gaps

Commercial property owners that shut their doors voluntarily to avoid potential civil unrest face unrecoverable business interruption losses under standard insurance wordings. Precautionary closures, such as those undertaken by major Paris cultural institutions ahead of planned demonstrations, highlight a persistent gap in cover when no physical damage or official authority mandate has occurred.

Standard property damage and business interruption (BI) coverage does not respond when a business elects to close out of fear of civil disruption, according to Tony Collman, property VP of speciality lines at Intact Insurance. Typical BI policies include three potential extensions: prevention of access following damage, non-damage denial of access, and loss of attraction. However, these triggers depend on either actual physical damage nearby or explicit orders from a relevant authority, such as police road closures or security cordons within a specific distance.

Under Intact's non-damage wordings, formal public authority orders are required to prevent claims driven by unfulfilled threats or social media speculation. Consequently, businesses face an awkward financial incentive to remain open until formal notices are issued by authorities or material damage takes place. Furthermore, non-insured perils like train strikes that prevent staff from reaching work fail to meet policy triggers under traditional wordings.

Alternative coverage solutions exist within the specialist parametric insurance market, though Intact does not write this class. Parametric cover pays out when pre-agreed metrics are met, such as measurable drops in footfall, regardless of physical damage. Collman advises brokers, insurers, and clients to hold tripartite discussions before civil unrest events occur to clarify policy terms, establish operational guidelines, and engage local public authorities on formal closure procedures.

For commercial property underwriters and brokers, the frequency of planned demonstrations requires clearer dialogue around non-damage denial of access and loss of attraction limits. Proactively reviewing policy wordings with policyholders before scheduled protests arise will be essential to managing expectations and addressing financial exposure on the high street.

Why it matters

Precautionary closures due to feared civil unrest leave commercial policyholders exposed without standard BI coverage unless official authority orders or physical damage occur.

FAQ

Does a standard business interruption policy cover voluntary closures ahead of planned protests?
No, standard property damage and business interruption policies do not respond when a business closes voluntarily out of fear of unrest.

What extensions might apply to business interruption coverage during disruptive events?
Three common extensions are prevention of access following damage, non-damage denial of access, and loss of attraction.

What is required to trigger non-damage denial of access coverage?
It typically requires action by a relevant public authority, such as police setting up a security zone or closing roads, often within a specific distance like one mile.

How can parametric insurance assist businesses facing disruption from civil unrest?
Parametric insurance pays out based on agreed triggers, such as a measurable drop in footfall, without requiring physical property damage to occur.

Source: Insurance Business UK. See the original source for full details.