The insurance industry faces an “existential threat” if it is forced to pay for business interruption (BI) claims that are explicitly excluded in black and white wording, Willis Re has warned in a COVID-19 report.

The warning comes as insurers face growing pressure to accept BI policyholders’ claims for income losses caused by the virus pandemic. Pandemic exclusion is, by default, included in BI covers unless a client makes a specific request and is willing to pay a significantly higher premium to insure the risk.

The pressure is particularly acute in the US, with a number of states already looking at introducing legislation to force insurers to pay for pandemic-related business income losses.

“This action represents an existential threat to the entire industry, never mind the consequences of unilaterally changing contract law,” Willis Re says. “The fact that this is an election year in the US could serve to amplify the bravado of politicians, to the detriment of insurance industry participants.”

Willis Re says using legislative action to pressure insurers “would shatter” the industry and push many into insolvency.

Estimates from the Insurance Information Institute suggest the US industry’s capital buffer of $US800 billion ($1.26 billion), as at the end of the third quarter last year, would be burned through in a matter of days from paying BI losses.