Pandemics could bankrupt insurers: Swiss Re

The big reinsurer warns that allowing claims against business interruption insurance due to COVID-19 will bankrupt the industry.

The world’s second-largest reinsurer has warned that if claims are allowed to be made against business interruption insurance due to the pandemic it will bankrupt the industry.

Infectious disease-related claims are excluded from most business interruption insurance policies and the Insurance Council of Australia has declared the COVID-19 outbreak a catastrophe pandemic.

Swiss Re’s Australia and New Zealand managing director Mark Senkevics said if pandemics “were not excluded” from business interruption insurance it would prove exceptionally challenging for the industry.

“A pandemic could bankrupt the entire insurance industry” if it was included, he said in a briefing late on Wednesday, warning against attempts by some businesses to challenge pandemic carve-outs.

“We have seen lawyers become very active in the class action space. In this space we have something that’s untested and I’m uncertain as to what the outcome might be.”

Casino operator Star Entertainment launched its claim for business interruption insurance in mid-April in what is being seen as a major test for the policies.

Swiss Re, the 150-year-old reinsurance business with more than $200bn under management, stands behind Australian insurance giants IAG and Suncorp in providing reinsurance.

The reinsurer said it was bracing for a raft of life insurance and mental health claims in the coming weeks and months as many suffer from the lockdown.

Mr Senkevics said the reinsurer was expecting low vehicle damage claims to turn the corner as the nation returned to work.

“From a life standpoint in Australia and NZ fatality has been relatively low thankfully and we should all be very grateful for that,” Mr Senkevics said.

“A bigger concern is disability income morbidity classes where we might expect to see an increase in the experience around mental health claims.”

The global reinsurer said it expected Australia to be one of the countries best positioned to come out of the sharp and sudden economic slowdown caused by the coronavirus.

Swiss Re’s group chief economist Jerome Jean Haegeli said the world was looking at a “car crash without airbags” as growth collapsed. “I expect (recovery) to start in the second half of this year but it will be protracted,” he said.

“We will not have a V-shaped recovery and even a U-shaped recovery is unlikely.”