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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 Nonetheless court interpretation to date and use of outdated policy wording has left insurers exposed.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 Thus far the interim outcome on the first test case has favoured the policyholder in relation to references to the repealed Quarantine Act.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.
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:
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.
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.