Business interruption demand rising despite pandemic wording issues

Business interruption insurance demand could be set for growth, despite legal battles and confusion during the covid pandemic, with wordings clarified and more firms aware of the product’s importance, a global group of lawyers says.

Global Insurance Law Connect (GILC) Chairman and Sparke Helmore Partner Gillian Davidson says the pandemic has focused the market on the need for policy clarity and a proliferation of policies that clearly exclude or include pandemic cover is providing more certainty.

“Despite some short-term pressures on pricing caused by global inflation, a recent wave of cases in Asia, including a potential new variant in China, and ongoing legal challenges hanging over from the pandemic, the outlook for business interruption insurance as a class is more positive than it has been for some years,” Ms Davidson says.

GILC members have reported a noticeable growth in demand for BI coverage since the outbreak of the pandemic and a report released by the group with insights from 19 countries suggests the class could see a period of growth and stability, particularly in more traditional areas of cover, such as property damage.

“However, there will still be a need by some clients for pandemic cover, particularly if the recent resurgence of cases in Asia leads to renewed covid measures and focus on such protection, and it remains to be seen what appetite insurers will have for such cover and at what cost,” Ms Davidson says.

GILC says in Australia, a small number of claims have been paid out since the pandemic began, often under specific covers, such as event cancellation. Industry-run legal test cases over disputed claims concluded last year.

Sydney-based Sparke Helmore Partner Mark Doepel says a low number of claim numbers has been attributed to claimants adopting a “wait and see” approach pending the resolution of the test cases.

“In the positive, the two test cases have created more certainty in the industry by confirming principles to be applied to each claim, albeit each matter will have to be determined on its facts.” Mr Doepel says, “BI policies will continue to be sold in the Australian market, potentially in greater numbers, given most small businesses are underinsured.”

Battles over about the extent of covid cover have continued in a number of countries, and GILC says the issue has become a challenge for insurers, regulators and governments.

“This has brought, over the long term, an unexpected positive,” Ms Davidson says. “Across the world, while claims have generated negative press, they have also made many businesses newly aware of the need for the right BI cover. In some markets, double-digit growth is expected in the year ahead.”

The report says discussions have continued in Europe on whether a public-private partnership should be forged to protect both sides from further pandemic risks, but there’s yet to be agreement.

In Italy, BTG Legal Partner Giogio Grasso says there’s more demand for business interruption cover, with wider and more vulnerable supply chains leaving companies open to interruptions in new and more complex ways, but carriers seem to be cautious about extending their capacity.