EU Regulator Urges Biz Interruption Reforms Amid Pandemic

By Lucia Osborne-Crowley
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Law360, London (February 15, 2021, 11:43 AM GMT) -- Europe's insurance watchdog has warned the sector that it should introduce clearer policies on cover for business interruption after many clients that found themselves exposed to losses brought about by COVID-19 lockdowns.

The European Insurance and Occupational Pensions Authority published a report on Friday that examined how the market for such cover could respond better to pandemics. Conflict over refusal by insurers to pay out on claims for business interruption during COVID-19 ended up in several court battles.

"The impact of the COVID-19 pandemic goes beyond the health sector and exhibits unprecedented socio-economic losses in the form of business interruption losses," the watchdog said. "Further lockdown measures in effect in 2021 are likely to delay recovery."

The regulator estimated that less than 1% of the estimated $4.5 trillion global loss brought about by the pandemic for 2020 will be covered by business interruption insurance.

"This vividly shows the interconnectedness of today's risk landscape, and the systemic nature of the pandemic crisis," the regulator added.

EIOPA said that insurers must put measures in place in case there is another pandemic, including policies that encourage healthy and hygienic practices at the workplace and individual habits such as social distancing. 

Insurers should also introduce clearer policies and pricing on business interruption insurance, the authority said and consider using capital markets instruments to fund the market for business interruption cover and help spread the risk.

EIOPA also emphasized the need for insurers and governments to tackle the mountain of losses suffered by companies during the pandemic that are not currently covered by business interruption policies

The watchdog published an initial paper on this lack of insurance in July, highlighting the need to create a system that involves the public and private sectors and which is centrally coordinated.

Business interruption cover has been hotly contested during the pandemic. The High Court of Ireland this month found in favor of four publicans who brought a legal challenge against their insurer for failing to pay out on claims for business interrupted by the health crisis.

Insurer FBD Group denied the claims on the basis that the business closure during lockdown was not the consequence of a local outbreak, but rather the countrywide presence of the disease.

But Judge Denis McDonald disagreed, saying claims should be paid if there was evidence of the virus within the geographic radius in the policy.

Britain's Financial Conduct Authority took insurers to court in 2020 after they refused to pay out on many of their business interruption policies and parts of the economy that suffered during the first national lockdown were left in the lurch.

The Supreme Court in London ruled in favor of policyholders and overturned a ruling from 2010, which reduced the amount of money that businesses could claim if the surrounding area had been devastated by natural catastrophes.

The Financial Conduct Authority has since urged insurers to write to all affected policyholders and "settle claims quickly."

--Additional reporting by Martin Croucher. Editing by Ed Harris.

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