Swiss multi-line insurance and reinsurance group Helvetia has taken the radical step of offering to pay 50% of the virus-related business interruption (BI) losses of its Swiss restaurant policyholders, despite continuing to insist that the risk is legally excluded from its policies.
This follows a compromise reached in Bavaria led by the German state’s economics ministry, under which a group of leading insurers have agreed to pay roughly 10%-15% of the 30% of BI losses incurred by restaurants and hotels but not covered by state and federal aid, despite also continuing to deny legal liability under the policies. The German state is paying for the other 70% of the losses.
No doubt risk managers, insurers, lawyers and politicians in North America and the UK will gasp with horror at the compromise agreements reached in Switzerland and Bavaria. But the fact is that most continental European risk managers will likely applaud the moves, which seek to help rebuild local economies while at the same time hopefully averting hugely expensive, time-consuming and economically damaging litigation over the validity or otherwise of BI policies for losses incurred by small businesses due to the global lockdown caused by the virus.
Helvetia explained its reasoning for the radical step in a statement. “Helvetia is offering a settlement solution to those Swiss gastronomy companies with a pandemic exclusion in their insurance policy, thus providing security for all involved. Based on the clear exclusion clause in the epidemic insurance policy, Helvetia rejects pandemic coverage and continues to maintain this position – confirmed by a legal opinion,” stated the St Gallen- and Basle-based insurer.
“However, it is offering a settlement solution to Swiss gastronomy companies that have such an epidemic insurance and which have experienced losses as a result of measures to contain Covid-19. This gives affected companies an opportunity to compensate some of these losses, despite the pandemic exclusion. The settlement solution enables them to recover quickly from the effects of the pandemic and provides security for all,” it continued.
Helvetia explained that its response is based on the fact that there are conflicting views on the effectiveness of the pandemic exclusion in epidemic insurance.
“Helvetia regards a pandemic as a risk that is insurable only to a limited degree, and has therefore excluded this event from epidemic insurance. Where there is no insurance coverage, Helvetia is not obliged to pay out claims. This view is also supported by a legal opinion provided by a prestigious law firm at Helvetia’s request,” continued the firm.
The Swiss Federal Supreme Court is due to rule on the applicability of BI exclusions to the pandemic but this will take some time. Helvetia said the businesses affected by the lockdown do not have that time, so a pragmatic solution was needed.
“Such a ruling is likely to take place in a year or two at the earliest, which is of no use to anyone in the current situation. With this settlement solution, Helvetia aims to provide immediate security with a pragmatic solution in the form of a fixed sum to help compensate companies for losses caused by officially mandated closures designed to contain Covid-19. This is urgently required to ensure the successful reopening of gastronomy companies on 11 May 2020 after this unprecedented Covid-19 event,” stated the insurer.
Helvetia explained that the proposed settlement payment is based on a flat rate and will come into effect regardless of legal conditions and without prejudice. It will compensate Swiss “gastronomy companies” with epidemic insurance that contains a pandemic exclusion clause, for 50% of non-covered costs and loss of profit.
The amount will be based on the company’s annual revenue and will cover the duration of the mandated operational closure (16 March to 11 May 2020) and an additional half-month following relaxation of the Federal Council’s measures.
“With acceptance of this settlement solution, the companies concerned also agree to adjust their current insurance product. Thus, Helvetia creates transparency and clarity. Although operational hygiene risks such as salmonella and legionella remain insured, no distinction is made between a local, temporary epidemic and a worldwide pandemic. The effects of epidemics and pandemics are excluded equally,” stated the insurer.
Helvetia argued that its compromise solution is a neat conclusion for everyone. But the firm urged the Swiss government to move fast in the creation of a state-backed pandemic insurance pool to deal with future health crises.
“The proposed solution brings security to everyone concerned. Gastronomy companies will receive rapid compensation. The settlement solution will also provide additional certainty to all Helvetia’s customers that their premiums are protected against incalculable major risks. Finally, the switch to hygiene insurance assures Helvetia of a shared understanding with the customer that claims resulting from a pandemic are excluded. The limited insurable risk of a pandemic requires new solutions such as exist in the form of pool solutions for catastrophic events, including natural hazards and nuclear accidents,” stated the insurer.
Helvetia is also offering its business customers help through a range of other pragmatic solutions. The insurer is granting rent deferrals and rent-free periods, and rent reductions on a case-by-case basis. It is also offering support for “liquidity bottlenecks” and is freezing collection and reminder processes until 30 June 2020 for premium payments due from 1 February 2020.
It also said that it is triggering claims payments without delay. “Helvetia advisers are supporting SMEs in their applications for government aid, and helping to clarify legal questions in collaboration with the insurer’s partner Coop Rechtsschutz. The leading transport insurer in Switzerland is offering support to business customers worldwide that are experiencing blocked goods transport and supply chains,” stated the insurer, in what looks like a reputational masterstroke that sadly may not be possible under the North American and UK legal systems.