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Bad news: pandemic infects the industry’s reputation

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We’ve all seen the headlines. Across the world from the US to the UK, mainstream media news titles have been all too eager to attack the insurance industry’s perceived failings as coronavirus and associated shutdowns took a heavy toll.

When it became apparent travellers and small businesses would not be able to claim for COVID-19 associated losses, the backlash was harsh.

A few headline examples from the UK, where the debate has been particularly intense: Coronavirus: 'We've spent £10,000 on invalid insurance' (BBC); Coronavirus has exposed Britain's insurance industry as a shambles (The Guardian); Insurers 'dragging their name through the dirt' as thousands left without COVID-19 compensation (The Telegraph).

Here in Australia the criticism was initially more muted. Insurers moved quickly to support customers, introducing a range of measures to help SMEs and refunding unused travel premiums. Some also gave discounts on car insurance as claims frequency fell during lockdown.

But the use of outdated policy wordings in business interruption policies has opened up a debate that the industry here had hoped to avoid, and negative sentiment has spread to these shores, too. An example headline: Washing hands of coronavirus: Expect little help from insurers (Sydney Morning Herald).

Locally and globally, the perceived effect on insurers’ reputations appears to be all too real.

Analytics firm GlobalData tracks news sentiment and says insurance has “fared particularly poorly” since the pandemic struck. It says three months of “extremely negative coverage” will leave a lasting mark.

GlobalData’s news sentiment index tracker found the insurance sector reached its lowest ebb in the second quarter of this year, with a sentiment score of 0.42, but has since recovered slightly to 0.44. The sector’s score was a more healthy 0.57 prior to the pandemic.

GlobalData Insurance Analyst Ben Carey-Evans says the industry has “always struggled” with its image and with consumer trust.

“That fell to new depths in March and April 2020 because of the news that many insurers, especially in travel and business interruption, would not have to payout once COVID-19 was declared a pandemic, which was incredibly damaging to consumer trust and will have lasting damage, despite the very slight upturn in sentiment.”

Test cases in the UK and Australia will provide greater certainty for businesses pushing for claims to be paid.

In Australia the upcoming case in the NSW Supreme Court will focus on the fact that many policy exclusions contained references to the now-repealed Quarantine Act 1908, which was replaced by the Biosecurity Act 2015.

But whichever way the court leans, its eventual ruling may not help the industry recover from its reputational slump.

If insurers prevail, they will have been proven right. But sympathies will likely continue to lie with the small businesses facing a bleak future without access to insurance payouts.

Should the claimants win, the industry will stand accused of trying to wriggle out of its responsibilities.

Insurers have a clear argument as to why pandemic exclusions were brought in, and say it should be obvious why claims cannot just be paid out regardless. The costs are too high – and the industry simply couldn’t survive such a vast drain on its resources.

Local industry leaders have stood firm in recent days. IAG MD and CEO Peter Harmer says the industry is confident in its view that it doesn’t matter which Act was referenced in exclusions.

“Any loss or damage as a result of pandemic is not covered,” he said following the insurer’s recent results presentation.

QBE Group CEO Pat Regan says “while there is some technical debate”, both the parliamentary Acts “specifically and categorically exclude COVID-19”.

Insurance Council of Australia CEO Rob Whelan says while the court case should not be pre-empted, “most insurers have never contemplated coverage for pandemics in their policies, and did not price pandemic risks into premiums”.

The industry’s argument boils down to this: How can insurers be expected to pay out on an event that impacted almost every business at the same time? It’s just not how insurance operates.

The insurers’ logic is routinely ignored by media groups which have little understanding of insurance and how it works – a lack of knowledge that plays to most mainstream journalists’ willingness to portray large companies as villains while giving the impression of sticking up for “the little guy”.

It serves media companies’ interests much better as they struggle to retain traditional readership levels, and as a result reputational damage to insurers will likely continue to be a symptom of COVID-19.

The message does occasionally get through, however, even if it does come from a faraway source. Insurers can’t cover the cost of the pandemic shutdown – and shouldn’t be asked to (Washington Post).