IAG is confident it will not be exposed to a wave of business interruption claims flowing from COVID-19 shutdowns but has backed the role of test cases in removing any doubts.

The Insurance Council of Australia is already bringing a test court case over legislation referred to in policies, while IAG last week also flagged the potential for a case to clarify that certain prevention of access extensions don’t apply for pandemics.

“There is in the minds of some a bit of confusion as to whether or not cover is afforded under that extension,” CEO Peter Harmer told a media briefing on Friday.

“Our view in relation to our policies – and I understand this is the position of the industry – is that the pandemic exclusion applies broadly across the entire cover and is not able to be selected as to which part of the cover that it applies to.”

Mr Harmer says terrorism pool arrangements, which are more focussed on impacts in a particular location, are also less suited for a global pandemic.

“I know there are people in different parts of the world looking at these kinds of pools as mechanisms to provide some kind of protection into the future [but] I am not sure how successful they are going to be,” he said.

“The best post-loss funder of an event of course is the Government and that is what is happening essentially in this pandemic.”

On Friday IAG reported a full-year net profit of $435 million, down from $1.08 billion, confirming the preliminary figures provided late last month.

The insurance margin declined to 10.1% from 16.9%, while the combined operating ratio deteriorated to 91.8% from 87.5%.

Gross written premium increased 1.1% to $12.14 billion, with Australian commercial lines seeing an average rate increase of around 5.5%, varying considerably by segment.

IAG has set aside a $100 million provision for COVID-19 repercussions, which includes potential claim cost pressures in areas such as landlords’ insurance, workers’ compensation and business interruption, and which also reflects risks to the trading environment.

IAG directors’ next challenge: see ANALYSIS.