Posted: 25 Jun. 2021 5 min. read

Are we as an industry acting fast enough?

With COVID-19 and government lockdowns continuing to play havoc in Australia and overseas the question is being asked, and rightfully so – are insurers doing enough, fast enough?

Of course, the answer is not simple. With policyholders potentially facing the prospect of insolvency as government funded support reduces, access to insurance payments now might well help them stay afloat and rebuild their businesses. However, entitlement is not clear. Insurers and actuaries argue pandemic risk is uninsurable – the business interruption policies were not designed to cover this sort of event. Nonetheless court interpretation to date and use of outdated policy wording has left insurers exposed. The potential impact of court decisions is not small, with current estimates placing liabilities for the Australian industry up to AUD$10 billion.

But is it right to sit back and wait for all of the court determinations to be made?

It would seem the ICA doesn’t think so. On 16 June the ICA launched an advertising campaign in newspapers encouraging policyholders to contact their insurer or broker about business interruption claims related to the COVID-19 pandemic.

To date we’ve seen two significant trends from insurers and policyholders: insurers delaying action while test cases are heard, and policyholders delaying the submission of claims. In April ASIC commented that they believe that less than 1% of potentially eligible claimants had lodged a claim with their insurer, prompting interest in how to increase this number.

What do we know?

Australian test cases

The two Australian test cases are well documented by the ICA . Thus far the interim outcome on the first test case has favoured the policyholder in relation to references to the repealed Quarantine Act. Whilst additional clarity is expected to emerge in the coming months as hearings occur it is likely that final outcomes will not be known until the end of 2021.

UK experience

Australia’s delays are in stark contrast to the UK, where payments (interim and final) have occurred on more than 50% of accepted claims totalling in excess of AUD$1.3B. Despite this providing somewhat of a lifeline to vulnerable businesses the potential for social capital gains for insurers has been somewhat eroded with many taking the view that insurers are taking too long.  Complaint volumes are high with businesses challenging the quantum determined and the length of time it has taken to reach an outcome.

So, what can Australian Insurers do now?

We assume that all insurers have, by now, reviewed policies for references in relation to the repealed Quarantine Act and identified any other anomalies or considerations needed for test cases. Whilst the court case outcomes are pending there are some areas where insurers can act now, enabling a state of readiness to respond. The ICA media campaign will make the need for such readiness more apparent.

In our view insurers should be asking themselves:

  • Are we ready to handle significant volumes of BI claims (and potential complaints) in relation to the impact of COVID-19 and associated shutdowns– do we have the resources to do so in a timely fashion?
  • How quickly can we identify our 'most vulnerable' customers?
  • Should we handle COVID related claims the same way we typically handle BI claims – with each claim handled on an individual basis including detailed forensic accounting assessment?
  • What are our options to enable improved information gathering from customers to facilitate handling times? Do we have standard templates in place and facilities for online lodgement?
  • How well do we understand our portfolio of policies? Can we segment the portfolio into low, medium and high risk categories that consider the type of industry and other factors such as proximity to outbreak, and the associated ‘zone of influence’. By zone of influence we refer to for example shopping traffic, whereby it is not just the immediate neighbourhood that impacts trade but surrounding areas and how this varies for different business types.
  • What is our risk appetite around assessment and calculation of financial loss - are we prepared to consider methods that facilitate bulk style assessment such as those used to enable customer remediation for banks.  Getting a balance between the time it takes and associated cost of handling claims, versus getting money quickly to policy holders is critical.
  • Lastly, and perhaps most importantly, to support your customers – is there an opportunity as an insurer to take a stance and start paying (partially or in full) now? With a suitable Board mindset, and identification of specific low complexity and/or most vulnerable policy holders, we believe this is feasible.

The alternative of course is to wait. For insurers to sit back, cross everything and await the court outcomes. Whilst it’s understandable that the industry is hesitant to move, the consequences of delaying can be considerable – to your customers that are struggling to keep their businesses on their feet and for your brand and the trusted position that the industry holds in supporting customers when they need it most.

Get in touch

Samantha Fuller

Samantha Fuller

Partner, Actuarial & Insurance Solutions

Sam is an actuary and insurance specialist with over 20 years’ experience providing advice across the insurance value chain. Sam has a deep knowledge and understanding of the claims process and is regularly called upon to review claims operations with a view to optimising customer and financial outcomes for insurers.