Industry Struggling to Pardon the Interruption

The one positive for those working in the insurance industry from the global social distancing regime is the ban on meeting anyone other than those with which you live.

It means no parties, and if insurance staff were reluctant to tell people where they worked in the past the rising tide of anger over the actions of the insurance industry will have only made that reluctance increase.

The pressure is on the industry and it is growing with every rejected claim story hitting the media.

As global economies go into freefall pressure is increasing on insurance companies in some jurisdictions to cover business interruption (BI) losses even if they were excluded in the original wording.

Lawmakers in New Jersey, Massachusetts, and Ohio are considering forcing retroactive policy changes to cover coronavirus BI claims. We have also seen some public officials in the United Kingdom calling for similar measures.

It has led to some industry analysts warning that there is a real threat to the liquidity of the industry.

Rating firm DBRS Morningstar warns the number of potential claims under such hypothetical retroactive changes would be so extraordinarily high in the current environment, we estimate that this would have a “material adverse impact on the capitalisation of the industry globally, and it could cause a liquidity crunch for some companies facing an unexpected surge in BI losses”.

Some say that there are no guarantees reinsurance companies would cover BI losses related to the coronavirus when they never intended to. The solution for underwriters may well be to throw themselves at the feet of governments in an effort to create a joint risk pool to manage the sheer level of claims.

If, however, if the industry can persuade the legislators of the folly of any retrospective actions it is not the end of the challenges that BI will pose in the months and years to come.

The prediction is that insurers are facing a rising tide of litigation as lawyers seize on the ambiguity in some BI clauses in an effort to get the policies to respond.

The expectation is that whilst existing BI contracts will be ultimately upheld and that the overall claims and loss ratios for most business lines will be manageable for the P&C insurance industry following the coronavirus, increased litigation costs will adversely affect insurance companies’ profitability in 2020 and 2021.

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