Pandemic yields positives for insurance industry

by Resolve Editor Kate Tilley

Despite the headaches the Covid-19 pandemic caused insurers, there are some key positives from the insurance industry’s responses.

That’s the view Clyde & Co partner Gareth Horne shared with delegates at the AILA National Conference.

He said key lessons learnt from the industry’s responses augured well for future catastrophes.

The collaboration between stakeholders – with insurers, brokers and regulators working together to take the business interruption (BI) test cases to court – was a blueprint for future co-operation without creating an anticompetitive environment.

Mr Horne said co-operation also occurred internally with underwriters, in-house counsel and claims teams working together on risk management to ensure mistakes, like references to outdated legislation, were eliminated.

Useful guidance

The BI test cases, particularly the 21 February 2022 Full Federal Court appeal judgement, contained useful court guidance for insurers dealing with claims management issues.

“The BI test case judgements are important because of the way the law has been applied,” Mr Horne said.

“The courts reminded us we should not immediately apply the contra proferentem rule against an insurer in the case of ambiguity but should first seek to determine whether the parties’ objective intent can be ascertained from the contract when read as a whole.” (The contra proferentem rule is a legal doctrine that says any ambiguity should be interpreted against the interests of the party that wrote the contract.)

He said a High Court special leave application on the Federal Court policy trigger issue will be heard, but not before October.

During the pandemic there was intergovernmental tension over border closures and lockdowns, and public health orders were very complex, particularly for hospitality and entertainment venues.

Wording creep

Mr Horne warned there was also “wording creep”. Extensions added during a soft market, for example, non-damage BI extensions, had unintended consequences. “Be very careful with underwriting during a chase for premium so you don’t inadvertently create problems [through] changes to policy wordings.”

The test cases were necessary because the UK’s test case was not applicable because it did not have the broad approach and was based on hypothetical not actual claims.

The Australian Financial Complaints Authority (AFCA) test case procedures were now “tried and tested” and a protocol agreement developed about payment of legal costs, plus an AFCA agreement to apply the reasoning.

The NSW Appeal Court’s decision to leapfrog a trial and go straight to the Appeal Court because of the public interest was a positive. “It’s good to know the courts are prepared to do that.” Live streaming the proceedings with efficient access to key documents was beneficial.

Policy triggers

Another positive from the pandemic was development of the DSpark Tool, a web-based, Australian Competition & Consumer Commission-authorised portal that aggregates public information about Covid-19 exposure sites and government-issued public health orders to help insurers assess Covid-19-related BI claims.

“DSpark gives insurers and brokers a common first port of call for evidence to help determine if a policy is triggered,” Mr Horne said. “It’s a great tool that was designed to fast track assessments if it was ultimately determined certain policies might respond and makes it easier for insureds to satisfy the burden of proof for individual Covid-19 cases and public health orders.”

DSpark is adaptable to other policies and insurable events, for example, bushfire and flood claims. “It’s a great, innovative response. The investment has been made to build the model and it can be repurposed. It shows industry goodwill to co-operate in a disaster scenario to develop a mutually beneficial, efficient assessment tool.”

Mr Horne said the pandemic-instigated industry co-operation bodes well for future market responses and could lead to greater alignment across the industry on policy wordings, without compromising market competition. “We’ll see a greater focus on collaboration to ensure a consistent approach to wordings for unique Australian risks.”