ABI: Insurers took reputational hit on COVID

The ABI’s director general Huw Evans has admitted that communications to company owners regarding their business interruption coverage was “too harsh and too insensitive” early on in the COVID-19 pandemic.

Speaking at the ABI’s virtual conference, he said that cyber insurance is the next coverage insurers and brokers need to keep an eye on.

As reported by sister publication Insurance Times, Evans said the insurance sector’s reputation had suffered as a result of the legal proceedings initiated by the FCA last April.

The Supreme Court’s judgment on the FCA’s test case surrounded the interpretation of business interruption (BI) policy wordings when applied to Covid-19-linked claims, the ABI’s director general Huw Evans said that insurers “have to learn the lessons” and that “doing nothing is not an option”.

“You always take a hit when there is an uninsured event. That is a golden rule and it doesn’t really matter to a certain extent who’s fault it is because people suffer as a consequence of not being insured.

“We always have to take stock after something like this has happened. We’ve seen it in other cases as well, in [a] smaller scale, with flooding - particularly before we had Flood Re, where people couldn’t afford insurance cover and they were not covered.

“The insurance industry took the reputational hit then. We did something about that, we can do something about this going forward. We have to learn the lessons. Doing nothing is not an option.”

Hazarding a guess at other potentially problematic gaps in the market, Evans identified cyber insurance as having “certain parallels” to 2020’s BI debate.

“If we’re going to look at any other single area of the market where we would be most worried there would be a repeat scenario, I think cyber is probably the most obvious area because it shares many of the similar characteristics,” he said.

“It’s an area that is typically underinsured – most businesses either don’t have cyber insurance at all or they don’t have sufficient cyber insurance. A major cyber attack can disproportionately hit small businesses that don’t have sophisticated defence systems and can’t afford to invest in them.”

He added that the ABI has set up a working group that is exploring potential public-private partnerships moving forward; cyber insurance is one area being considered in this remit.

Lloyd’s wins in US BI lawsuit

Meanwhile, a verdict for Lloyd’s in the first COVID-19 business interruption lawsuit to go to trial highlights insurers’ strength in such cases in the US, according to a report published by Bloomberg Intelligence.

BI’s litigation tracker shows insurers have won dismissal in over 80% of rulings. Though this trend should extend, says BI, risks can be seen in a few decisions holding that a shutdown order constitutes physical loss, requiring coverage.

A 10 February trial win for Lloyd’s in a BI coverage lawsuit by a New Orleans restaurant underscores insurers’ strength in such cases in the US. The suit against Lloyd’s was in the minority in alleging that coronavirus was present on premises, and the policy at issue lacked a virus exclusion.

Nonetheless, the court ruled for Lloyd’s, denying coverage. Though no reason was given, the verdict suggests that the court found that neither the presence of the virus nor government shutdown orders constituted physical loss for purposes of coverage.