On January 15, a bombshell hit the UK insurance industry when a final ruling was handed down regarding the Financial Conduct Authority (FCA)’s business interruption (BI) case. The Supreme Court’s judgement dismissed insurers’ appeals and upheld the original verdict on the FCA’s case, a decision that could have significant ripple effects here in Australia.
Since the ruling was issued, QBE has already moved to increase its provisions for COVID-19 losses from US$600 million (around AU$776 million) to US$785 million (around AU$1.015 billion), adding to the risk margin to include the potential for Australian BI claims. It follows a test case heard by the New South Wales (NSW) Court of Appeals late last year, which rejected the insurance industry’s argument that policies should not cover COVID-19 pandemic-related losses.
The Insurance Council of Australia has previously stated that the insurance industry here faces up to $10 billion in claims if insurers will be required to take on the BI-related costs of the pandemic, and local companies have already taken steps to deal with the potential fallout – after the NSW Court of Appeals ruling, Insurance Australia Group (IAG) immediately halted trading and set out to raise $750 million in new equity capital as it readied itself to deal with an increase in claims.
For Dallas Booth, CEO of the National Insurance Brokers Association (NIBA), the truth of the matter is that BI claims will ultimately depend on the wording of BI policies’ exclusion clauses.
“Taking the broad view, we can see that there are a range of policy wordings in play,” Booth told Insurance Business. “There will be some policies where the losses will be covered, and some where the losses won’t be covered.”
Booth added that “from day one, our advice to NIBA members has been that it’s not the broker’s role to decide whether a business interruption claim is valid or not – it is the insurance company’s role to decide if they will accept the claim.”
As a representative body for approximately 90% of all insurance brokers in Australia, NIBA’s ultimate wish regarding BI-related claims is simple, according to the CEO: “We want each potential claim assessed properly and in accordance with the terms and conditions of the relevant insurance policy applicable to that loss or that circumstance.”
Vishal Kapoor, meanwhile, remarked in an interview with Insurance Business earlier this month that the looming threat of COVID-19-related BI payouts “is going to be bigger than Ash Wednesday, bigger than the Brisbane floods – it’ll be the biggest thing insurers have ever seen.”
“What this Quarantine Exclusion act provides is cover, in a way, to SME clients,” the director at McLardy McShane and co-owner of McLardy McShane Kapoor said.
“Insurance companies are often happy to pay a large claim because they know it’s going to be a one-off payment. But when they’re paying, say, $250,000 in multiple cases, it might not hit their reinsurance cost and they’ll have to pay it out themselves. If this happens, it’ll impact their bottom line like never before.”
Michael Olofinsky, managing director at Balgowlah-based Brookvale Insurance Brokers, said the concerns that have been bubbling regarding BI policies over the past few months have caused a number of clients to enquire about how they might be affected by any court rulings on this issue.
“Our role is to advise clients on what is happening and to recommend that they keep records, in case the courts rule against insurers and decide that the Quarantine Act is not applicable,” Olofinsky said. “If they wish to make a claim, then they are entitled to lodge one.”
“We have explained to clients why insurers have taken their stance and our opinion that COVID-19 is, in some ways, SARS under a different name,” Olofinsky stated, adding that the recent coronavirus-caused lockdown of Sydney’s northern beaches had delivered “some big hits” to local businesses that rely on outside customers.
