A second test case on COVID-19 business interruption (BI) claims is needed to create “industry guardrails” for how policies should respond, IAG CEO Nick Hawkins says.

IAG last week reported a net loss of $460 million for the six months to December 31, primarily due to the expected cost of BI claims. The figure compares to a $283 million profit for the previous corresponding period.

As insuranceNEWS.com.au has reported, the insurance industry lost a test case last year after the NSW Court of Appeal ruled insurers could not rely on exclusions that referenced the now repealed Quarantine Act.

But the industry is seeking leave to appeal that decision in the High Court, and is also in advanced talks with the Australian Financial Complaints Authority over a proposed second test case that would look at issues such as the definition of a disease, proximity of an outbreak to a business, and prevention of access.

Mr Hawkins told insuranceNEWS.com.au the proposed second test case will being greater clarity.

“Assuming that we did not exclude a pandemic and therefore our policies respond, how do they respond? Our wording wasn’t put together to contemplate a pandemic scenario because we thought we’d excluded it,” he told insuranceNEWS.com.au.

“So therefore the second test case is really about creating those guardrails at industry level as to how our policies would respond assuming a pandemic exclusion doesn’t occur.

“What’s really important here is the way the industry addresses this with speed and brings the issues to a head as quickly as possible through the courts so we have clarity on whether or not the exclusion applies, and secondly the guardrails on how our policies respond to different scenarios.”

Despite the net loss Mr Hawkins is pleased with the company’s underlying performance and momentum.

Gross written premium (GWP) rose 3.8% to $6.19 billion and the underlying margin increased to 15.9%. Insurance profit increased more than 33% to $667 million.

“On the underlying performance of the company the margins look good and there is a little bit of growth in the organisation,” Mr Hawkins said.

“It just feels like there is a bit more momentum at IAG today than there was six or 12 months ago so we are pleased with that.”