The last few months have been rife with reports of insurers rejecting COVID-19-related BI claims, as well as cases of legal action being taken against those insurers. But most of them have come from the US, UK and Europe. We speak to some claims experts to find out why this has not been such a big issue in Asia Pacific.
When the outbreak of COVID-19 first started earlier this year, there was considerable discussion over whether or not business interruption (BI) policies should cover businesses’ financial losses as lockdown measures started coming into effect.
Now, more than six months later, the topic remains as contentious as it has ever been – with reports of insurers denying BI claims, and being taken to court for it, making headlines almost every week.
Interestingly, these cases have largely been absent in Asian markets, and there are several factors that help account for this phenomenon, most notably the region’s experience with the SARS outbreak in the early 2000s.
The SARS effect
According to Willis Towers Watson corporate risk and broking head of claims for Asia Neil Thomas, one of the things to emerge from SARS was the realisation that a pandemic can very quickly become a massive financial event that the insurance industry is not positioned to cater for.
He said that while the SARS outbreak resulted in substantial economic losses in Asia – $3.5bn in China and $1.1bn in Hong Kong – COVID-19 insured loss estimates vary wildly, with the upper limit ranging between $80bn and $100bn.
Prior to SARS, many BI policies could be triggered if there was an outbreak of an infectious disease within a geographical boundary of insured premises (within city limits or a given range, for example).
Rather than excluding infectious diseases from BI policies however, insurers in Asia instead narrowed the requirements for the policies to be triggered, said Marsh regional claims leader for Asia Dennis Dalati. Now, most policies will only be triggered if the infectious disease is found on the insured premises rather than within a specified boundary.
“Before SARS, the standard policy language for infectious disease gave cover to establishments where an outbreak of infectious disease within 25 kilometres or miles of the establishment that led to closure would lead to a claim,” said Mr Thomas. “Following SARS, cover was redacted significantly so that the cover would only apply if there was an outbreak on the insured premises that led to closure.”
“It’s narrowed the scope a little bit more, which means it’s a little bit harder for us to put in claims when clients have not had the infectious disease on their premises. It is much harder to get that claim over the line than if cover was extended to geographical boundaries,” said
Mr Dalati.
Is there less BI cover in Asia?
Is BI cover simply less popular in Asia than it is in the west? “For smaller businesses, that’s almost certainly true,” said Mr Thomas. “For major businesses, I would say Asia buys just as much cover as its western counterparts.
“If you look at the lawsuits that have been filed, and there are literally thousands of them now, many in the US are restaurants, dental practices, and small businesses who do buy BI cover. I don’t think that is the case to the same extent in Asia.”
Mr Dalati said, “In Australia and the UK, for example, you have sole business owners that own a restaurant or a shop – who actually buy insurance because it’s very much a cultural thing in those countries for even the smallest business owners to buy insurance.
“Whereas in Asia, you don’t tend to see your small business owners go out and buy insurance for their restaurant or food stall. But it’s not to say that a lot of restaurants do not have BI cover, those that do tend to be part of a larger conglomerate.”
He also suggested that BI cover at that level in Asia could be seen as more of a luxury and a cost that needs to be reduced rather than a transfer of risk.
In the legal spotlight
The cultural differences between the east and the west also extend to the willingness of consumers to pursue legal action, making legal actions for denial of BI claims in the US and UK much more prominent.
“In Asia, cultures tend to be more conservative, so reaching for the courts is very often a last resort,” said Mr Thomas. Meanwhile, cultures in the US, and Europe to a lesser degree, are very litigious as these societies are more liberal and more used to going to court to resolve disputes, he said.
“Australia is also quite a litigious society, but we have seen very little COVID-19 BI activity in the country up to now,” he added. “And Australia has some peculiarities in its own policy language in place relating to the Quarantine Act that restricts the cover available and people seem to be seeing and accepting that they don’t have cover for COVID-19 BI.”
The media frenzy
And of course, court cases involving big companies have inevitably whipped the media into a frenzy. Such extensive coverage of these cases is bound to skew how people perceive the reality of the situation.
In addition, the narrative of big companies running roughshod over SMEs is one that could resonate with consumers of mainstream media.
“You see in the news in Europe and Australia about your local restaurant or small business owner that has had this interruption and now the insurer isn’t paying and they’re going bankrupt,” said Mr Dalati. “These types of stories tend to get a lot of traction in those countries and they are very much in the public domain.”
He added that there is also a lot of pressure from the government in the US, UK and Australia to look into these particular matters because it appeals to the masses.
Waiting on a ruling
While Asia has not seen as much activity with regard to policyholders making BI claims and insurers responding to those claims, that could very well change in due time, as it is likely that insurers have put the claims on hold while waiting to see how UK’s Financial Conduct Authority (FCA) rules in its test cases.
“The FCA decided that there were a number of variations of policy wordings and that the best way to get legal guidance for the industry was to take this test case – and they’re testing 17 different variations,” said Mr Thomas.
“The idea was to do it quickly, have a judge determine which wordings would need to pay in which circumstances, and that would serve as a guide and a sort of litmus test for insurance companies in general.”
Mr Dalati said that while the majority of businesses who would be submitting BI claims have already done so, many of these claims have not yet been accepted or denied as insurers and brokers wait on FCA’s ruling.
“We’re all just waiting and looking out for the FCA rulings that are going to be due in October to see what they think BI cover should be covering, and we’ll then provide more guidance to our clients on the back of that,” he said. A