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Law360, London (March 31, 2020, 4:47 PM BST) -- European insurers could face worse than expected claims costs if they are forced by governments to make "ex-gratia" payments to businesses affected by coronavirus-related closures, a ratings agency warned Tuesday.
Moody's said losses from claims in both life and general insurance were "manageable" at present, but that could change if insurers were made to provide compensation to crisis-hit businesses that were not directly insured against coronavirus-related damages.
Insurers have come under fire from governments over their response to the crisis so far, with federal authorities in the U.S. weighing bills that would effectively force insurers into paying claims resulting from COVID-19.
"Insurers face the risk that governments will exert pressure to make ex-gratia payments to their clients or to make some other form of financial contribution to the resolution of the crisis," Moody's said in a note.
Business interruption insurance, which pays out if a company is forced to close, is generally limited to physical damage. Add-ons exist to cover cases when a company closes because of "notifiable disease" outbreaks, but those only take effect where the government has ordered a company to close, or the outbreak is on site.
The Association of British Insurers said that only a "very small minority" of businesses will have the required business insurance in place to enable them to successfully claim.
On Friday, lawmakers in New York introduced a bill that would force insurers to retroactively cover business interruption claims from COVID-19, even if the policy did not originally insure against closure from an infectious disease or had specific exclusions.
Similar bills have also been introduced in Ohio and New Jersey, causing the U.S.-based National Association of Mutual Insurance Companies to warn over "irreparable harm done to contract law" and the prospect of widespread insolvencies across the insurance sector.
Hermes Marangos, a partner at London-based Signature Litigation LLP said it was one thing for governments to criticize insurers for failing to meet their obligation. "It is, however, a whole different proposition if governments are abdicating the state's obligations to protect its people by transferring the obligation to any industry, whether or not insurance cover exists," he said.
--Editing by Alyssa Miller.
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