Image copyright Getty Images Image caption UK companies face a cash flow crisis as many have been forced to close due to the lockdown

Payouts to UK firms over coronavirus could cost £1.2bn, initial estimates from the Association of British Insurers (ABI) indicate.

Close to £900m will go to a small number of firms that have infectious disease insurance, the ABI says.

Watchdogs are predicting a rise in disputes between companies and insurers over whether their cover includes the financial fallout of Covid-19.

The Treasury Select Committee is urging insurers to be fair with claimants.

Most of the £1.2bn figure is made up of business interruption insurance, but only to those companies which took out specialist policies, such as Wimbledon organisers the All England Club, .

Image copyright Reuters Image caption The organisers of the Wimbledon Championship cancelled its lucrative sporting fixture, but will be covered by insurance

ABI chief executive Huw Evans explained why some claims will not result in a payment to firms.

"Most business interruption insurance policies that most businesses have are very much designed to protect them from fire and floor every day risks that protect their businesses and in the small number of cases it's designed to cover illnesses that come on your premises for a short duration they're not intended and not priced to cover a global pandemic."

However Mr Evans also said there will be claims that have to go to arbitration between insurers and claimants over whether they are covered for the pandemic.

If insurers and companies cannot settle a dispute between themselves it goes to the Financial Ombudsman to sort it out.

Claims rejected

The ABI says its early estimate also includes a record £275m paid to customers in cancellation claims on travel insurance, and £25m for claims relating to weddings, school trips and events.

The initial estimate of £1.2bn in payouts does not include claims made through the major insurance market Lloyd's of London.

Commenting on the ABI's claims, Commons Treasury Select Committee chair Mel Stride said MPs had heard of many UK businesses struggling to get money from their insurers.

"The ABI has estimated that its members will pay out £900m in business interruption claims relating to coronavirus.

"Yet, the Committee continues to receive evidence concerning the difficulties that firms are facing in making a successful claim.

"For example, [Pub and dining firm lobby group] UKHospitality told us that 71% of its members have had claims rejected, with only 1% having any success.

Image copyright Getty Images Image caption Pubs, bars and restaurants have been virtually empty across the UK for more than a month

"There may be many instances where individuals and businesses believe they are covered, but in reality may not be.

"However, we are concerned that the insurance sector goes the extra mile in meeting claims wherever possible. For example, where there may be grey areas within policies."

'Urgent concern'

Last week the Financial Conduct Authority ordered insurance companies to pay out claims to firms "as soon as possible" or explain themselves to the watchdog.

The British Chambers of Commerce's head of economics, Suren Thiru, said cash flow was an 'urgent concern' for its member businesses "so it is particularly disappointing that many are facing an uphill struggle to access such a vital lifeline.

"The insurance industry has the opportunity to demonstrate that it is there for our business communities when they need it most - and work together with government to help their customers weather this unprecedented economic crisis."