Insurance Issues Arising From The Covid 19 Outbreak

Insurance Issues Arising From The Covid 19 Outbreak Presented by: Franziska Arnold-Dwyer Date: July 3, 2020 Financial Impact Of Covid-19 And Types Of Insurance Policies That Might Respond - Consumers • Loss of income / loss of employment due to sickness  Different types of income protection insurance (ASU cover) • Medical expenses  Private health insurance • Cancelled holidays and events  Travel insurance  Wedding/event cancellation insurance - Businesses • Loss of profits  Business interruption insurance • Non-performance / non-payment of obligations by counterparties  Contingent business interruption / supply chain insurance  Credit /non-payment insurance • Legal liability for workers and to the public  Employers' liability insurance  Public liability insurance • Cancelled events  Event cancellation insurance  Business travel - NB: coverage depends on the fact pattern and the terms of the policy in question. To be discussed later. - Non-insurance financial assistance: State subsidies and benefits for consumer and businesses Wording And Coverage Issues - - Am I covered? Insurance policy wording checklist: • Insuring clause: the types of losses that are insured • Triggers: the perils / risks that cause the loss • Exclusions: the risks / losses that are specifically excluded from insurance cover • Definitions: defined terms used in the insuring clause and the exclusions • Claims limits and deductibles • Causation test: the link between the trigger and the loss • Known events and inevitable losses cannot be insured Other coverage issues: • Breaches of duties and policy terms that can impair coverage • Double insurance Claims Process - Most policies contain claims provisions requiring the insured to give notice of loss: • "Immediate" notice of any loss • Notice within a specified fixed time from the date of the loss • Notice "as soon as is reasonably practicable" • Notice of any circumstances which may or are likely to give rise to a claim, and thereafter to notice of any claim actually made - Provisions specifying form of notice and proof of loss - Consequences of breach of notice provision depend on type of term - Claims co-operation and mitigation of loss - Insurer is under duty to pay valid a claim within a reasonable time (IA 2015, s.13A) Covid-19 Claims - The FCA Test Case - FCA -v- Arch Insurance (UK) Limited, Argenta Syndicate Management Limited, Ecclesiastical Insurance Office plc, Hiscox Insurance Company Limited, MS Amlin Underwriting Limited, QBE UK Ltd, Royal & Sun Alliance Insurance plc, and Zurich Insurance plc (FL-2020-000018) - Expedited claim brought under the Financial Markets Test Case Scheme (CPR PD 51M) - Determination of key points relating to business interruption insurance where losses are not required to result from physical/property damage - FCA selected representative sample wordings - Central questions for determination: • Is loss arising as a result of interruption or interference with the insured's business covered under any relevant non-damage insuring clause? • Is there the necessary causal link between the losses sustained by policyholders and the relevant peril that is covered? - Court decision will be legally binding on the insurers that are parties to the test case (and provides persuasive guidance for similar claims) - FCA guidance: FCA's expectations for insurers and insurance intermediaries when handling claims and complaints for business interruption policies during the test case Regulatory Issues And Reinsurance - Regulatory: • FCA test case • FCA's expectation for firms to be flexible and treat customers fairly in relation to Covid-19 related claims • Solvency II firms:  Must assess their insurance products and their risk exposure: wordings review for affirmative and non-affirmative (silent) pandemic risk exposures  Effect of pandemic on balance sheet - Reinsurance: • No reinsurance coverage for claims paid but not covered under the underlying policy • Mismatch of insurance coverage and reinsurance terms • Reinsurance aggregation: event v occurrence v cause; per risk v per policy • Pandemic Re in the UK; Germany pandemic cat bond? Future Outlook - Insurance market's perspective - Transport and aviation sector's perspective - Compliance function's perspective - Broker's perspective - Lawyer's perspective - Academia's perspective