Business interruption insurance market faces rising demand – report
It found that despite high inflation, increased scrutiny of wordings, and higher premiums, businesses and insurers have more clarity about what can be expected in a BI policy.
Gillian Davidson, GILC’s chair and a partner at Sparke Helmore, said it highlighted that the response from insurers, governments, and regulators varied markedly in each jurisdiction despite businesses across the globe facing similar challenges.
For example, in Australia, the NSW Court of Appeal ruled against insurers in the first BI test case concerning policy exclusion wording, which cited an outdated Quarantine Act.
Australia’s second test case, held in the Federal Court, involved 10 claim disputes related to an outbreak’s proximity to a business and the impact of various exclusionary policy clauses and government pandemic orders. The decision handed down was appealed in the Full Federal Court, with leave to appeal refused by the High Court on October 14, 2022.
The court largely ruled in favour of the insurers, although it was ruled that government-assisted JobKeeper subsidies could not be offset against any payouts. Before the final High Court ruling, three key insurers had collectively set aside over $1 billion in provisions for related matters, with one since reducing its provisioning from $975 million to $615 million, and another expected to release most of a $179 million provision.
“Business interruption insurance was thrust into the spotlight as the pandemic took hold and the world went into lockdown,” Davidson said. “A consistent picture is that global demand for business interruption has increased as businesses have become focused on the need to have the right type of cover.”
The future of business interruption insurance
Despite 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 related to the COVID-19 pandemic, GILC’s outlook for BI insurance is more positive than it has been for some years.
“The pandemic has focused the market on the need for clarity in policy drafting and has led to a proliferation of COVID-responsive policies that either clearly exclude or include pandemic cover providing more certainty for insurers globally and their clients,” Davidson said.
“Consequently, business interruption insurance as a class could see a period of growth and stability at last (particularly in more traditional areas of coverage 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.”
