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Pandemic will lead to greater oversight: law firm

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Almost two-thirds of Australian insurers expect more legal and regulatory oversight as a result of COVID-19, a survey of insurance executives has found.

Sydney-based law firm Clyde & Co says 63% of those surveyed expected more intervention, particularly in business interruption, travel and accident and health.

The poll found 79% of insurers are concerned the pandemic will impact the ability of customers to continue to purchase insurance, and just over half worry about the impact on employees.

“COVID-19 has certainly tested the social contract between insurers and their customers, which gives regulators a different lens through which to scrutinise the sector,” Clyde & Co partner Avryl Lattin said.

She says the value of insurance and the role played by insurers in society is being “increasingly questioned by customers and regulators protecting customer interests,” which may lead to unprecedented levels of regulatory intervention and supervision of the sector.

Clyde & Co says that as the interpretation of pandemic and infectious diseases exclusions are considered by courts in the coming months, “we could also see legislative intervention from governments regarding the payment of business interruption claims and availability of cover resulting from COVID-19".

The Australian Prudential Regulation Authority is likely to reapply its temporary lifting of capital reserve benchmarks for banks and could consider introducing similar prudential benchmarks for the insurance sector to ensure that insurers have access to significant capital buffers for when the next catastrophe event hits, the law firm says.

The Australian Securities and Investment Commission (ASIC) has also signalled it will increase its data and information collection efforts regarding the COVID-19 responses of insurers.

“We could see an increase in regulatory and prosecutorial action by ASIC,” Clyde & Co says.

The first wave of COVID-19-related claims is expected to be dominated by travel, landlord and business interruption policies, with a second wave of COVID-19 related claims forecast in trade credit and life insurance as policyholders seek alternative avenues to recover financial losses when government protection measures come to an end.

The law firm says that after the pandemic insurers should “offer pragmatic and efficient solutions, adopt a digital and technology strategy and apply innovation in products and distribution. Insurers need to position themselves as partners to help businesses prevent losses and support them through challenges.”