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Australian property/casualty insurers’ potential payouts for business interruption claims following a test case ruling by the New South Wales Court of Appeal will be manageable, said S&P Global Ratings Inc.
“We expect the additional claims cost as a result of the test case ruling will vary by insurer and depend on specific policy cover. Payouts may also be subject to further legal avenues,” it said.
“Our expectation is that while there will be a hit to current year earnings, the impact on ratings is negated by conservative reserving, reinsurance protection, and maintenance of robust capital buffers.”
The ruling handed down by the NSW Court of Appeal related to insurance policies that contained exclusions that referenced the now repealed Quarantine Act 1908, rather than the Biosecurity Act 2015. As such, potential claims would likely be confined to policies that referred to the now redundant Quarantine Act, rather than all business interruption claims.
At the same time, S&P noted that the payment of business interruption claims would also be contingent on policy-specific wordings, and their application under various pandemic-related economic and social restrictions.
These could include whether the incidence of COVID-19 amounted to direct physical damage or threat of damage to property or persons, whether physical access to a business was denied, whether there was an evacuation as a result of the damage and whether the business restructured or continued to be open in a different capacity.
The Insurance Council of Australia and its members are currently determining whether to appeal the decision to the High Court of Australia.
Asia Insurance Review is a sister publication of Business Insurance. More stories from AIR here.
More insurance and risk management news on the coronavirus crisis here.
A survey by U.K.-based Chartered Insurance Institute found that the Financial Conduct Authority's test case for non-payment of COVID-19 pandemic-related business interruption claims has weakened trust in the insurance sector, Asia Insurance Review reported. The survey revealed that 29% of respondents feel the case greatly reduced the public's trust in insurance.