Australia’s financial regulation agencies say they are keeping a close eye on efforts to test the validity of business interruption insurance pandemic exclusions and have called on the industry to move as quickly as possible to resolve uncertainties.

The Council of Financial Regulators, comprising the Australian Prudential Regulation Authority (APRA), Australian Securities and Investments Commission, Treasury and the Reserve Bank of Australia discussed the issue at their latest quarterly meeting.

“The council has been closely monitoring the progress of efforts to test the validity of pandemic exclusions in business interruption insurance policies,” a statement released this week says.

“The NSW Court of Appeal recently ruled in favour of policyholders on one key issue, though other areas of uncertainty remain.”

Council members noted a number of insurers had increased potential claim provisions following the court’s decision on the case.

“They encouraged the industry to work with the Australian Financial Complaints Authority (AFCA) and to move as quickly as possible to resolve any remaining uncertainty and promptly pay out valid claims,” the statement says.

The test case on the validity of exclusions citing the repealed Quarantine Act 1908 was brought by the Insurance Council of Australia with AFCA.

A decision is yet to be made on whether an appeal application will be lodged, while a further test case to consider other issues such as proximity and prevention of access clauses is also being discussed.

The regulators council also discussed “several work streams” on cyber security and is looking at an enhanced framework for the security and resilience of critical infrastructure, including in the financial sector.

Other topics covered included APRA’s proposed remuneration prudential standard, bank loan repayment deferrals, credit conditions more generally and positive developments on containing COVID-19 and the progressive opening up of state borders.

“These developments will aid the economic recovery and in turn reduce some of the stresses faced by households, businesses and the financial system,” the statement says. “Nonetheless, the shock to the economy has been large and path to recovery is likely to be uneven.”