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'Insurance businesses will collapse' under virus pressure

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“Significant numbers” of Australian insurance businesses are likely to go under as the combined impact of COVID-19 claims and a global recession hits home, a law firm has warned.

Global Insurance Law Connect, an alliance of legal firms, has launched an international report, Approaches to Coronavirus, with Australian commentary provided by member firm Sparke Helmore.

“It is almost certain that we will see insurance businesses fail, and quite possibly in significant numbers,” the report says.

Sparke Helmore Partner Gillian Davidson told insuranceNEWS.com.au the stark prediction is based on the likely impact of coronavirus claims, the hit to specialist insurance sectors such as travel insurance and the inevitable recession in Australia and across the world.

“Small businesses that specialise in niche areas will struggle,” she said, adding that insurers, intermediaries and underwriting agencies could all be affected.

The report says most COVID-19 related claims will be long-tail “during the pandemic phase and also when the recovery begins”.

“While not seeking to be alarmist, we consider it is likely that all classes of business will be affected,” it says.

“The obvious impacts will be seen in the travel, life, health, event cancellation and business interruption classes.

“It might also be the case that liability, defence costs, financial lines and directors’ & officers’ classes are impacted, depending on the success of the Australian Government’s intervention measures aimed at reigniting the economy and relieving directors and officers of liability for certain decisions in these extraordinary times.”

Ms Davidson told insuranceNEWS.com.au “significant numbers” of business interruption claims could be paid, despite insurers’ intentions to rely on exclusions.

“We have been advising clients on the operation of contingent business interruption extensions in property policies, most of which provide cover where diseases cause loss without the need for actual physical damage under the ‘section 1’ property cover,” the report says.

“If we think outside of the box, insureds may also try to get cover wherever available and based on a number of the environmental liability protection wordings we have seen a daring insured might even seek to make a claim under these policies.”

Click here to read the full report.