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ID Comment: Future response could escalate Covid-19 reputation risks

Industry’s response to future cover will have an impact on how its Covid-19 response is perceived

The uncertainty surrounding the financial impact of Covid-19 in first-quarter reinsurance earnings commentaries is not surprising, given the challenges carriers face in assessing claims.

For reinsurers, the process is further hampered by being one step removed from the claims process, which means they are reliant on cedants to advise on likely losses.

During the recent Insurance Day webinar examining the insurance implications of the pandemic, Ann Haugh, president of global markets at Axis Re, said many clients were reluctant to advise on Covid-19 estimates, creating a reporting lag on the reinsurance side.

One key lesson to have already emerged from Covid-19 is insurance industry efforts to deliver contract certainty have not been as effective as many might have assumed, given the question mark over wordings for UK business interruption covers.

“Covid-19 is leading to a great deal of questions about what coverage has been bought. It is pointing out lessons industry should have already learned about the benefits of contract certainty. It is troubling to see so much uncertainty around,” Paul Brand, deputy chief executive of Convex, said.

Brand warned of the potential for insureds to have an overly optimistic view of what is recoverable. “Businesses are under extreme duress. Everyone is looking for solutions and potential financial compensation. You can sense there is a lot of anger and dissatisfaction out there,” he said.

This anger and dissatisfaction creates reputation risk for insurers.

Katherine Coates, partner at Clifford Chance, which sponsored the webinar, said insurers need both to support their customers and get across the message that insurers are businesses that must manage their assets appropriately.

“They can’t pay out under policies when it is not justified under the contract,” she said. “It is all about trying to get the message across to the broader public that there is a balance to be struck here. Insurers have to be seen to solve the problems they can solve.”

The key message about reputation is it now extends beyond just claims response. “Reputation will also be affected by how the industry responds in the future, including what happens on renewals and whether products are going to be withdrawn and whether new exclusions will be applied,” Coates said. “There is room for the industry’s reputation to be negatively impacted beyond the initial period.”

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