The COVID-19 pandemic has brought the world together in a truly unique way. People all over the globe are calling for solidarity and unity. But as the world stands together against this new threat, some have accused the insurance industry of standing apart.
This accusation stems primarily from how pandemics and infectious diseases are excluded from most policies, resulting in many companies being unable to make claims on the grounds of business interruption (BI).
The argument is that insurance is meant to provide financial support when unexpected situations arise – such as the current global health crisis – and that insurers should be paying claims to companies that have had their business disrupted as a result of the pandemic and subsequent efforts to contain it.
Between a rock and a hard place
The insurance industry has worked hard over the years to shed its reputation of being cold and calculating, while building an image of being a noble industry that helps people in their time of greatest need.
Now, members of the public are calling on insurers to make exceptions on moral grounds and live up to the image they have been building. Some have even suggested that governments and lawmakers should intervene and force insurers to pay out.
But requiring insurers to pay out uncovered COVID-19 BI claims retroactively could undermine the integrity of insurance contracts and set a dangerous precedent that policies can be changed under extenuating circumstances.
In response, insurance associations have come forward to address these concerns and explain why doing so would not be a good idea.
It could destabilise the industry
The Global Federation of Insurance Associations (GFIA) has urged governments not to require insurers to pay out uncovered claims as it could “seriously threaten the stability of the global insurance industry”.
“Events such as fires, motor vehicle accidents, and natural catastrophes covered by insurance do not stop, even during a pandemic,” it said in a statement. “At the same time, insurers manage their financial strength in order to meet the promises and guarantees made to customers, whether they are related to the pandemic or not.”
GFIA said that retroactively changing the terms of policies would not be an appropriate way to address the large-scale financial impacts of the COVID-19 pandemic.
Such actions could threaten the entire financial stability of the insurance industry and significantly undermine insurers’ ability to pay other types of claims and in turn exacerbate the negative impacts the economy is currently experiencing.
Not the purpose of insurance
In a separate statement, the US National Association of Insurance Commissioners (NAIC) said it would caution against and oppose proposals that would require insurers retroactively to pay unfunded COVID-19 BI claims that policies do not currently cover.
It pointed out that BI policies were generally not designed or priced to provide coverage against communicable diseases, such as COVID-19, and therefore include exclusions for that risk.
“Insurance works well and remains affordable when a relatively small number of claims are spread across a broader group, and therefore it is not typically well suited for a global pandemic where virtually every policyholder suffers significant losses at the same time for an extended period,” said NAIC.
It warned that requiring insurers to cover such claims would create substantial solvency risks for the sector. M