(Top) Matt Brewis, Financial Conduct Authority UK, Alberto Corinti, IVASS Italy, Kate Nicholls, UK Hospitality (Middle) Marc Sarbach, Swiss Mobiliar, Kai-Uwe Schanz, The Geneva Association, Claudia Strametz, Munich Re (Bottom) Dennis Noordhoek, The Geneva Association
The second panel session discussed the business interruption protection gap exposed by the COVID-19 pandemic.
Taking the U.K. as an example, many businesses assumed their business interruption insurance policy covered pandemics. Test cases brought to court by the FCA revealed ambiguous policy wordings in several cases. Some insurers have decided to retroactively cover pandemic-related business interruption, assessing that the long-term reputational damage for not paying out is more costly than paying claims in the short term. However, regulators are not urging insurers to pay claims out of policy. Hence there is no conflict between conduct and prudential regulation objectives.
On a global scale, the issue with ambiguous policy wordings is rather small and pandemics in most cases are clearly excluded. This raises the question as to why the role of insurers is limited when it comes to covering pandemic-related economic losses. The nature of a pandemic makes it impossible to insure economic losses resulting from government-mandated business closures, as most of the insurability criteria (such as independent and predictable loss exposures) are not met; insuring pandemic-related economic losses would put insurers’ balance sheets at risk.
The focus on BI policies has led to false perceptions that insurers are absent when it comes to providing pandemic cover. Pandemic-related insurance cover is in fact abundant in other business lines: life, health, event cancellation, and travel.
Although actuarial and economic analysis points to a very limited ability for insurers to take pandemic-related BI risks onto their balance sheets, insurers can play a role in government-led solutions, for example by providing their expertise or their infrastructure.