More disputes to come over COVID-19 uncertainty, warn lawyers

Speaking at its virtual Rendez-Vous conference on regulatory and transactional developments in re/insurance, Dan Rabinowitz, a New York-based partner at the firm, said the trend could be seen in the US.

“Insurance regulators and policymakers have been looking at ways to make infrastructure investments more attractive from a risk-weighted perspective to induce insurance companies to deploy capital,” he explained, “and also to pursue a green agenda by making coal and other fossil fuel investments less attractive.

“They’re levering investment laws in a way that advances public policy.”

The EU Commission’s review of Solvency II could lead to prudential requirements being used for other policy purposes, added Reid Feldman, a partner in the Kramer Levin’s Paris office. For example, it could seek to encourage low carbon investment through different capital requirements for green and brown assets.

“In France, public authorities are eyeing the insurance industry’s large reserves as a way to jumpstart the economy, to get young businesses more capital through investment by the insurance industry,” Feldman added.

More directly, increasing natural catastrophe losses linked to climate change may see other regulators follow the example of Australian and Canadian regulators, suggested another panellist, Peter Liebwein, global head of P&C structured reinsurance solutions at Swiss Re.

“In the context of climate change, there might be a higher frequency and severity of natural catastrophes, so those two jurisdictions have asked the industry for additional stress tests,” he said.

“I would not be surprised if we see that on the horizon.”

Limiting life losses

The conference considered a range of developments affecting insurers during and after the pandemic.

For the life industry it noted that, while the pandemic had increased mortality, that had been mitigated by decreased non-COVID-19 mortality and infections.

“On one side, mortality increased, but on the other morbidity decreased, and health insurance was a clear winner of the 2020 crisis,” said Romain Durand, director of Covéa Life Reinsurance.

Crucially, the demographics of those most affected limited life cover losses.

“The impact was milder than feared because COVID-19, especially in the first spike, was an older age disease and older age mortality trigger, while traditionally, when it comes to mortality products, the insured populations are generally younger,” he said.

“The impact on the general population was quite significant; the impact on the insured population was lower.”

Insurers sought to limit liabilities as the crisis progressed by increasing waiting periods in contracts to limit the impact of adverse selection.

Cases to come

More seriously, for P&C lines, business interruption caused significant problems. The initial position taken not just by insurers but by financial regulators that pandemics would not generally be covered had, said Feldman, proved “logical and reasonable but incomplete”.

He noted that the courts had taken some unexpected decisions on exclusions, such as for those for closure by administrative order.

“In France, the courts have not followed the logic of the exclusions in business interruptions policies by and large,” he said.

“These exclusions were simply swept away and not taken into account.”

Further liability claims may yet arrive around directors and officers and general liability, he warned. Examples included potential claims against cruise liners for mis-statements regarding COVID-19; against a pharmaceutical company for alleged mis-statements regarding prospects of developing a vaccine; and possible claims for failures to protect employees or customers for breach of privacy obligations.

“This is an area where I don’t think we yet have an idea of the full measure of the impact on society and the insurance industry,” said Feldman.

“The plaintiffs’ bar has limitless imagination,” he warned. “We’re going to see COVID-19 play out in more ways than just the business interruption segment.”

For Liebwein, recent events for the industry were a reminder of two decades ago with claims following the attack on the Twin Towers.

“With the 20th anniversary of the 9/11 attacks, there’s something the industry will now take from that event: the importance of contract certainty and clear language so all parties have the same understanding of the actual insurance protection which is provided.”