IAIS: The retroactive attack on BI policies for pandemic risks would pose a material threat to the insurance sector

The International Association of Insurance Supervisors (IAIS) has warned lawmakers worldwide that any effort to retroactively open business interruption (BI) policies to Covid-19’s excluded losses would create “material” solvency risks for insurers and would significantly undermine your ability to pay other types of claims.

The association said that if such efforts were allowed to continue, it would threaten the protection of policyholders and financial stability and further exacerbate the serious financial and economic effects of the virus.

IAIS also said it favors the creation of alternative and likely state-backed insurance mechanisms to help cover future pandemics and is ready to facilitate discussions internationally.

“The Covid-19 pandemic has created a global public health emergency with serious human and economic consequences. Insurance is an essential service in this time of distress, providing protection against the growing uncertainties created by the pandemic. For insurers to play this role and contribute to the economic recovery, the stability of the sector is vital, ”said the association.

The IAIS said that discussions on the supervisory responses to Covid-19 have highlighted the importance of effective protection of policyholders and fair customer treatment at this difficult time. He said he welcomes the variety of proactive measures taken by insurance supervisors and insurers in support of policyholders.

He noted that such efforts include the implementation of alternative, non-face-to-face distribution and service arrangements that allow flexible arrangements for premium payments, premium reimbursements and discounts on policies with significantly less risk exposure, and voluntary improvement in coverage / reduction Premiums for Essential Workers.

Above all, the IAIS said insurers must ensure that claims are handled quickly and clearly where risks are covered within policies. “In circumstances where pandemic risks are covered by a policy, it is important that insurers pay for such claims quickly and efficiently. Efficient claims handling and clear communication with policyholders regarding Covid-19 loss coverage should help deepen confidence in the insurance sector and contribute to longer-term economic recovery efforts. ”

But IAIS strongly opposes legislative efforts in the United States and elsewhere to retroactively open BI policies to the pandemic risks that are excluded.

“At the same time, the IAIS cautions against initiatives seeking to require insurers to retroactively cover losses related to Covid-19, such as business interruption, which are specifically excluded in existing insurance contracts. In such cases, the costs of loss claims have not been incorporated into the premiums that policyholders have paid for their insurance. Requiring insurers to cover such claims could create material solvency risks and significantly undermine insurers’ ability to pay other types of claims. Such initiatives could ultimately threaten the protection of policyholders and financial stability, further compounding the financial and economic impacts of Covid-19, ”the association said.

“This widespread pandemic has highlighted the limits on the types of coverage that the insurance sector can reasonably offer. In such circumstances, pooling and diversifying the risks necessary to support viable insurance coverage are difficult to achieve. IAIS therefore encourages efforts seeking potential solutions to protect companies and individuals against these types of risks, and is ready to help facilitate these discussions internationally, “added the IAIS.

Source: Commercial Risk