News Coronavirus watch20 Nov 2020

Australia:Test case ruling will not be major interruption for insurers

| 20 Nov 2020

Australian P&C insurers' potential payouts for BI claims following a test case ruling by the New South Wales (NSW) Court of Appeal will be manageable, said S&P Global Ratings (S&P).

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handed down by the NSW Court of Appeal related to insurance policies that contained exclusions that referenced the now repealed Quarantine Act 1908, rather than the Biosecurity Act 2015.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 BI 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.

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