Big insurers look to lock in ‘lowball’ pandemic payouts for Covid-19 business interruption

Businesses are receiving ‘lowball’ offers from insurers to settle pandemic payouts as the industry scrambles to firm up payouts.

A series of court cases has muddied the water on how much will be paid out to businesses that closed due to the pandemic, or saw turnover affected by restriction. Picture: Brendan Radke

Businesses are receiving “lowball” offers from insurers to settle pandemic payouts as the industry scrambles to firm up payouts after the High Court cleared the way to settling the long-running issue.

The nation’s largest insurers – Insurance Australia Group, Suncorp and QBE – had put aside $1bn in total for potential lawsuits and payouts depending on the interpretation of policies relating to biosecurity matters.

However, a series of court cases, which concluded in the High Court rejecting any future pandemic-related insurer appeals earlier this month – has muddied the water on how much will be paid out to businesses that closed due to the pandemic, or saw turnover affected by restriction.

The size and speed of payouts remains to be determined, with insurers reporting only a scattering of claims being lodged, leaving many thousands more in the air.

Berrill & Watson principal John Berrill said his firm was aware of several clients who were insured customers of some of Australia’s largest writers of cover who in recent weeks had been offered settlements from insurers.

Mr Berrill said these insurers were attempting to head off potentially higher claims payouts by locking in early, smaller payouts.

“It is very much at the beginning of the assessment phase but the early indications are that insurers are going to take whatever points they can to minimise payouts,” he said.

Mr Berrill said insurers were seeking to lock in early claims payouts by getting customers to sign agreements that drop future claims of liability. He said insurers might also seek to limit business losses to a percentage based on the reduction in income prior to government closure orders kicking in, noting this may see potential claims limited to a “fraction of the full entitlement”.

Insurance Australia Group CEO Nick Hawkins. Picture: Dan Gray

Mr Berrill said he had seen letters from IAG, one of Australia’s largest insurers, among other insurers, proposing to settle ­potential claims with customers.

“The warning for businesses is to be very careful with what information is requested and provided and get advice before accepting any offers,” he said. “In addition, many claimants will simply be told that their policy doesn’t cover them at all for Covid because of the test case rulings,” Mr Berrill added. “However, this is simply not correct and thousands of businesses will still have potential claims.”

IAG told investors ahead of its annual meeting on October 21 that it would slash its pandemic provisions and roll out a $350m buyback. This came about after IAG was forced to the market to fund a $750m capital raising in 2020 after a NSW court ruling suggested the insurer could face thousands of pandemic-related business interruption claims.

IAG ultimately locked away $975m to cover the potential pandemic payouts, but very little has thus far been paid out by the insurer, with only small sums being handed over to cover cleaning costs for Covid-19 outbreaks.

An IAG spokesman said the insurer was “well prepared” to ­assess claims but only about 1000 of as many as 76,000 eligible customers had actually lodged claims for pandemic losses.

IAG chief executive Nick Hawkins told The Australian this month that he hoped business ­interruption claims could be ­resolved “as soon as possible”, but assessing was proving difficult.

“We’ve already been working with all of our brokers, and encouraging all of our brokers to bring forward claims,” he said.

Suncorp has also slashed pandemic provisions from a high of $214m to $179m in June.

But the insurer told investors in mid-October it would now move to release the “majority” of its remaining provisions as part of its 2023 first-half results.

“Suncorp is communicating next steps with brokers and impacted direct customers who have made claims affected by the High Court’s decision,” the company told investors.

A Suncorp spokesman said the insurer was not disclosing how many business interruption insurance claims had been lodged or what steps it was taking after the High Court’s decision.

QBE took a similar approaching, confirming it had begun ­assessment and reassessment of claims lodged.

QBE has seen a strengthening of its pandemic provision, telling investors in August it had tipped a further $75m into provisions after suffering a loss in UK courts.

However, this comes after QBE booked a $139m benefit in the financial year to the end of June 30, down on the company’s $655m charge locked in early in the pandemic.

“QBE is committed to applying the principles of the courts’ final rulings in the test cases to all business interruption claims,” a QBE spokeswoman said.