Forcing insurers to cover business interruption losses that fall outside the original scope of policies would threaten the solvency of the industry on a global scale, rating agency DBRS has warned.
The failure of insurance companies in Ireland to pay out for business interruption cover has become a massive bone of contention. Industry groups say stricken companies will take legal action to recover losses they say are covered in their policies.
Jim Flannery, president of the Irish Claims Consultants Association and a director of Balcombes Claim Management which advises people on their insurance claims, said its analysis of insurance contracts found at least some policy holders should be entitled to compensation under the cover they had taken out ahead of the Covid-19 outbreak.
Mr Flannery said his firm had been contacted by a huge number of business owners including pubs, restaurants, coffee shops, and other retailers, who are closed as a result of Covid-19.
"We have done an analysis of over 20 policies on the market and have identified those that have cover for business interruption losses as a result of closure due to Infectious Disease or Denial of Access by order of a Local Authority," he said.
Despite that, some insurers have been issuing formal letters of declinature, even using solicitors to deny claims, he said. Insurers were, he said, "playing on words to avoid paying out".
The Central Bank last month wrote to all insurers in Ireland saying that if there was any ambiguity in the wording of an insurance policy concerning extent of cover, the benefit of the doubt should be given to the customer.
Insurance industry insiders say that policies which included cover for business premises shut as a result of an infectious disease were typically focused on local food poisoning outbreaks rather than a shutdown of entire industries.
But policy holders insist that where they've paid for business interruption cover, insurers must honour policies.
The clash between insurers and insurance customer is not just happening in Ireland, according to DBRS.
There is growing pressure on insurance companies in a number of jurisdictions to assume business interruption (BI) claims, it said, even if original policies were not intended to cover pandemic losses.
Following the Sars outbreak in 2003, insurance companies were hit with millions in BI claims and the industry globally began changing standard commercial policies to exclude losses caused by viruses.
The scale of the current lockdown means honouring those claims could become ruinous to the property and casualty (P&C) insurance sector, said DBRS.
"Forcing P&C insurers to cover losses they had not originally priced in - or had no proper reinsurance in place for - could jeopardise the underwriting performance and solvency of the industry in the short term," it wrote.
The rating agency said even if that doesn't happen the legal costs associated with cases taken by customers will affect the profitability of insurers in 2020 and 2021.