Covid19 Claims affecting Insurer Profit and Credibility

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Covid19 business interruption claim lawsuits against insurers have exceeded one thousand around the world with more on the way due to the continuing damage to retail, tourism and hospitality businesses.

From those BI insurance cases that have been adjudicated, nearly all have been in favour of the insurers who have persuaded judges to throw out the cases by making the court agree that a property insurance policy cannot be invoked if there is no property damage.

However, there are some court cases that were settled in favour of the insured. In France, a notable BI case has already been resolved, as AXA agreed to cover losses sustained by several hundred restaurants after losing a court case brought by one owner. Recently the Financial Conduct Authority (FCA) in the UK organized a business interruption test case against several major insurance firms. The High Court ruled that the majority of businesses who held business interruption insurance and were forced to close due to the COVID-19 pandemic, are entitled to be compensated by the insurers subject to the limits of the policy.

This test case is considered a landmark victory for up to 370,000 businesses across the UK who were forced to close their premises during the pandemic should now receive an insurance pay out from Hiscox Insurance. The FCA hopes that the insurers accept this ruling and start to pay out rather than embark on a fruitless appeals process that will just cause more suffering for the very policyholders they were meant to protect.

No matter the outcomes of BI lawsuits, the insurance industry faces a broader risk to its reputation and has a strong need to repair customer loyalty following the pandemic’s outbreak. There are growing concerns around the industry’s reputation for providing fair claims payment. In the spotlight for broadly denying BI claims, the industry has been fighting against the image of insurers as companies that take clients’ money, but don’t pay out when it really matters.

With reduction in premiums and increased claims due to the pandemic, the losses to the industry will be significant. To avoid further injury to bottom lines and ensure its image remains intact, the insurance industry may need to change. It may need to increase its efforts with stakeholders, governments and the industries it serves that have been especially hard-hit by the pandemic and to come up with responsible coverage solutions that offer coverage for future pandemic-related losses, as well as risk mitigation guidance that adequately prepares commercial clients for this threat.

​Without a show of cooperation and a willingness to offer protection to businesses for this ongoing risk, insurers may have trouble winning back the customer loyalty that has already been frayed by this global crisis.

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