COVID-19 will force fundamental changes to products and policy wordings in Asia: Crawford

The COVID-19 pandemic will push insurers and reinsurers to evaluate their exposure, review product offerings and adjust policy wordings—all against a backdrop of a hardening market and a complex claims environment in many other ways. Veronica Grigg, president, Asia, Crawford, spoke to Intelligent Insurer ahead of SIRC 2020 Re-Mind.

To what extent have COVID-19-related claims disputes in the UK and US been replicated in Asia?
In September, the UK High Court ruled in favour of the Financial Conduct Authority (FCA) in the COVID-19 business interruption (BI) insurance test case brought to clarify key issues including coverage and causation wording.

While this decision was made in the UK court system, it potentially has ramifications for COVID-19 claims in some Asian markets.

From a coverage perspective, infectious diseases policy wordings in Asia were strengthened following the SARS outbreak in the early 2000s. The main difference was the requirement for any closure of the premises to be related specifically to an infection occurring on the actual premises. This matter was not dealt with directly in the FCA ruling and as such, any impact to the coverage position in Asian markets is likely to be minimal.

The most significant aspect of the ruling was probably the apparent rejection of the outcome of the 2010 Orient Express Hotel case and the application of the ‘all other circumstances’ clause.

If this position prevails, it could shift the way BI claims are viewed following losses from any catastrophe, not just infectious diseases. The appeal on this aspect of the ruling will have ramifications for BI claims worldwide.

What effect is the pandemic having on reinsurance renewals in Asia?
As the COVID-19 situation unfolded, the awareness of potential loss triggers has increased. It is difficult to measure the long-tail nature of casualty exposures and this makes it hard for insurers to identify silent exposure.

The industry will now need to assess how reinsurance may or may not respond to the exposure from the pandemic. A review of reinsurance programmes and policies will help mitigate risks from future pandemic-related losses.

What changes do you expect to see to insurance and reinsurance wordings in 2021?
The pandemic will push insurers and reinsurers to evaluate their exposure, review product offerings and adjust policy wordings. This happened after the SARS outbreak in 2003, when underwriters brought in new exclusions and extensions.

In the case of BI policies, the issue of causation has been the core bone of contention. The FCA test case decision has shifted accountability to insurers to clearly explain policy coverage and exclusions to customers due to renew their policies.

Where are the biggest challenges for claims managers in the current environment?
Policy wording contention on BI claims is a key challenge. Few successful claims have arisen under conventional BI policies as a direct consequence of infection, usually through the operation of exclusions for quarantinable diseases or equivalent wordings.

Some have been accepted under specific covers relating to individual premises and event cover—primarily in entertainment.

More recently, as governments at all levels issued direct orders closing or curtailing business operations, wider coverage has been triggered under public authority clauses attached to many policies. Policy response remains variable, and analysis of each circumstance is essential in understanding if a policy may respond.

What is the outlook for Asian supply chain-related claims?
With insolvencies expected to rise in the coming months, supply chain disruption will become an increasingly significant risk for companies. The electronics, technology and pharmaceutical industries rely heavily on suppliers within Asia and mostly China, and the massive reduction and cancellation of flights will disrupt supply chains and prevent the completion of finished goods.

The challenges arise from policy coverage, exclusion and aggregation issues. Contention over contracts will also be a major challenge depending on what protections the clause provides and whether the pandemic falls within the policy.

How has your Asia claims business performed over the past six months?
In our core property markets of Singapore and Hong Kong, there has not been any significant impact to overall claim volumes. However, there has been some shift in the mix of claims. There has been a drop-off in property damage claims due to lockdowns and reduced economic activity. This has been more than compensated by increased notifications of COVID-19-related BI claims.

However, we expect there to be an increase in property claims following the lifting of restrictions as idle machinery and weary workers return to full production.

Meanwhile, lines such as travel and employee compensation have decreased significantly and we see this trend continuing until economies begin to open up and travel restrictions are lifted.

How is Crawford’s Asia business evolving and expanding?
We are going through exciting changes with expected new leadership in three of the 10 Asian countries in which we operate in 2021 due to the retiring of some of our key business leaders. In 2020, we welcomed new leadership in Philippines and Taiwan. The newly formed Asian leadership team will focus on growing the loss-adjusting business and developing our third-party administration offering.

The impact of COVID-19 has also accelerated the technology transition. We are looking at how to best integrate technology into internal processes and how they interact with our clients to achieve efficiency, cost reductions and performance enhancements.

How have your objectives been affected by COVID-19 and a hardening insurance market?
Rate hardening was already in evidence across several sectors prior to the global spread of the coronavirus, and the pandemic is likely to serve as a major catalyst for further market-wide rate increases.

Given declining investment returns, a predicted drop in gross written premiums and the renewed focus on underwriting profits, it is expected insurers will work hard to maintain upward rate momentum to counter any reduction in earnings.

Such market developments will undoubtedly create a more challenging environment as companies and their brokers begin the renewals negotiation process.

Evolving market dynamics could also impact the claims process, with insurers placing a greater burden of proof on claimants in the event of a loss and requiring a more intensive causation examination to ensure the specifics of an incident are within the parameters of the policy.