Insurers have started assessing the financial impacts of the ruling handed down by the New South Wales (NSW) Court of Appeal in the COVID-19 business interruption (BI) test case. The industry’s argument that policies should not cover COVID-19 pandemic-related losses was rejected, leaving many insurers on the hook for potentially thousands of coronavirus-related BI claims.
The ruling has caused major concern for some insurers around whether they have the capital required to cover such losses. However, S&P Global Ratings insists that potential payouts for BI claims will be manageable. The firm said additional claims cost as a result of the test case ruling would vary by insurer and depend on specific policy cover.
“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,” S&P said in a release. “Potential claims would likely be confined to policies that referred to the now redundant Quarantine Act, rather than all business interruption claims.”
S&P added that the payment of BI claims would also depend 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 firm said.