QBE named in UK business insurance test case

Insurers could be forced to pay large sums on business interruption claims

QBE has set aside $115m for any potential losses

Insurance major QBE has been named as one of 16 providers that will be subject to a test case from the UK’s financial regulator regarding business interruption coverage.

The outcome of the case from the Financial Conduct Authority could see many insurers on the hook for significant sums of money and follows QBE announcing last week that it would set aside $115m for any potential losses.

Investment analysts have warned QBE could be forced to pay $200m all up in business interruption claims by 2021 despite assurances otherwise.

JP Morgan analyst Siddarth Parameswaran said despite insurers intending not to cover claims relating to pandemics, loose wording could leave them liable in some cases.

“The thing about these circumstances is that you try and make it very clear what you’re going to cover and what you’re not going to cover, but what can happen is there could be some things you unknowingly end up covering,” he said.

“At the end of the day, no one knows what these claims will cost, QBE’s and many other insurers’ view is probably they will be negligible but they’ve given a worst-case scenario for the UK which is $US75m.”

British insurer Aviva said it expected COVID-19 claims for travel, commercial, and business interruption insurance in the UK would cost it around £160m ($300m).

FCA interim chief executive Christopher Woolard said the case was part of a package of measures from the British regulator but it was clear some insurers would have to pay.

‘The court action we are taking is aimed at providing clarity and certainty for everyone involved in these BI disputes, policyholder and insurer alike,” he said. “We feel it is also the quickest route to this clarity and by covering multiple policies and insurers, it will also be of most use across the market.”

QBE and many other insurers operating in Australia do not cover business interruption claims arising from COVID-19 and it is unclear whether ASIC intends to bring a test case.

A small number of Australian businesses do have pandemic cover built into their interruption insurance.

Star Casino is appealing the decision of its business interruption insurer to deny coverage and the Australian Financial Complaints Authority has signalled it believes there will be many contested claims in the coming weeks.

Global reinsurer Swiss Re’s local managing director Mark Senkevics previously warned that if pandemics “were not excluded” they risked bankrupting the industry.

“We have seen lawyers become very active in the class action space. We have something that’s untested and I’m uncertain as to what the outcome might be,” he said last week.

AFCA chief executive Justin Untersteiner said he expected to see a growth in complaints regarding a collection of financial products. “We also expect to see an increase in responsible lending complaints, disputes relating to scams, and a rise in business interruption insurance complaints, and additional complaints relating to early access to superannuation from June to September,” he said.