“This is going to be bigger than Ash Wednesday, bigger than the Brisbane floods – it’ll be the biggest thing insurers have ever seen.”
That is how Vishal Kapoor (pictured), director at McLardy McShane and co-owner of McLardy McShane Kapoor, characterised the looming threat of COVID-19-related business interruption (BI) payouts when talking to Insurance Business.
A test case heard by the New South Wales Court of Appeal last year rejected the industry’s argument that policies should not cover COVID-19 pandemic-related losses. Though the Insurance Council of Australia has since elevated the case to the High Court of Australia with hopes of overturning the outcome, the potential fallout for the industry remains clear.
“It’s the biggest challenge facing every Australian insurer and broker,” Kapoor said.
“What this Quarantine Exclusion act provides is cover, in a way, to SME clients. Insurance companies are often happy to pay a large claim because they know it’s going to be a one-off payment. But when they’re paying, say, $250,000 in multiple cases, it might not hit their reinsurance cost and they’ll have to pay it out themselves. If this happens, it’ll impact their bottom line like never before.”
As a member of the ANZIIIF faculty advisory board with more than two decades of broking experience across a multitude of sectors under his belt, Kapoor is well positioned to predict the effects BI claims could have on Australian insurers.
“We’re not going to be out of the woods when it comes to COVID-19 for a number of years,” he added. “A broker is never more important than in today’s environment, especially a customer-focused one like McLardy McShane Kapoor, where we are uniquely placed to address client concerns due to our extensive experiences over the journey.”
“I think these claims will result in an even harder market than we’re currently experiencing and will cause some insurance companies to either leave Australia or fold,” he stated.
Nevertheless, there will always be a need for insurance and the Australian industry is “effectively bulletproof as a whole”, according to Kapoor.
“We’ve gone through the collapse of the biggest insurer in Australia, HIH,” he said. “We’ve endured catastrophes and natural disasters, like floods and bushfires, year-on-year, as well as a Financial Services Reforms Act which saw us through the Global Financial Crisis admirably. We’ve seen some major shifts occur, but the industry has remained strong throughout it all.”