Forcing retroactive payouts to cover business disruption losses resulting from the coronavirus pandemic could ultimately put financial stability at risk, global insurance regulators said.
Disputes over cover for businesses struggling to stay afloat during coronavirus lockdowns have erupted in countries including Britain and the United States, where eight states have brought in laws which would require insurers to pay claims, mainly to small businesses, despite exclusions.
Where pandemic risks are covered by a policy, insurers should pay out such claims in a prompt and efficient manner, the International Association of Insurance Supervisors (IAIS) said, while cautioning “against initiatives seeking to require insurers to retroactively cover Covid-19 related losses.”
“Such initiatives could ultimately threaten policyholder protection and financial stability, further aggravating the financial and economic impacts of Covid-19,” said the IAIS, which groups regulators from the United States, Europe and Asia.
A global financial industry body, the Institute of International Finance (IIF), has also warned that retroactively changing policies could lead to “decreased availability of insurance, the withdrawal of insurers from certain markets and overall increases in the price of available coverage.”
Also on Thursday, the Federation of European Risk Management Associations launched a taskforce to look at cover for business interruption due to catastrophic risks like the coronavirus pandemic, saying any cover would require government help.
In its statement, the IAIS said that the pandemic highlighted the limits on the types of coverage that can reasonably be offered by the insurance sector alone.
“The IAIS, therefore, encourages efforts seeking potential solutions to protect businesses and individuals against these types of risk, and stands ready to help facilitate these discussions at the international level.”
Disputes between insurers and companies in Britain over whether policies offer valid coverage for disruption in the coronavirus pandemic has prompted the Financial Conduct Authority (FCA) to seek clarification from the courts.
Britain, France and the United States are looking at what role the state could play in pandemic cover, though this would only apply in the future.