Insurers count cost of Covid-19 BI judgment

Insurers are reassessing their liability exposures to business interruption (BI) claims following yesterday’s “complex” High Court judgment on BI wordings that widens the net of UK buyers, mainly SMEs, able to claim for losses during the Covid-19 lockdown. Hiscox said the judgment would affect about 10,000 of its policies and cost just under £100m in additional Covid-19 claims, net of reinsurance, for all divisions and including Hiscox Re. The additional costs are £150m lower than the group’s upper-end forecast risk scenario. Hiscox said less than one third of its 34,000 UK BI policies will be affected by the judgment and its exposure is limited to buyers that were mandatorily closed by the government order “and then only in certain circumstances”. QBE said, based on the judgment, which it said ruled against one of its three policy wordings put to the test case, its exposure to UK BI claims linked to Covid-19 is about $170m gross and reduced to $70m net of reinsurance. RSA said the court’s decision was split across its five policy wordings used in the test case, with some upheld and others not, but would cost an additional £104m gross and limited to £85m net of reinsurance, although this could be further reduced by its group-wide aggregate reinsurance. RSA has already paid or reserved £57m in Covid-19 losses. RSA added that Covid-19 “benefits” booked during the third quarter together with reserves already set aside and reinsurance recoveries will “fully offset the impact on profit” from the judgment. Zurich said the court judgment backed its policy wordings selected for the test case and the Zurich wordings do not provide BI cover for the Covid-19 outbreak. However, Zurich said it will now review the implications of the judgment on wordings put forward by other insurers in the test case, which could result in an increase in its group claims cost estimate of $750m for Covid-19 P&C losses. Zurich said any increase “will not be material to the group’s earnings”. Ecclesiastical Insurance also said its policy wordings used in the test case were backed by the judgment and it is not required to pay Covid-19 losses to its BI policyholders. All the insurers involved, which also included Arch, Argenta and MS Amlin, said the judgment is complex and loss estimates are subject to any appeal, with a decision on any application to appeal to be made in October. Responding to the judgment, Lloyd’s said the verdict brings “coverage clarity for many policyholders with certain non-damage business interruption insurance extensions”. QBE said it is considering its options to appeal the court’s decision on its notifiable disease policy wordings, while Hiscox said it is reviewing the judgment in full. “These are extremely difficult times for businesses and [Hiscox] regrets any contract dispute with customers,” Hiscox said. The Financial Conduct Authority brought the test case in June after thousands of UK businesses – from shops to salons – were denied BI claims when Covid-19 forced a nationwide lockdown in March.

Insurers count cost of Covid-19 BI judgment

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