No way, we won’t pay. This has been the refrain from insurers in Ireland and across the globe for the last six weeks. Their widespread refusal to pay up for business losses caused by Covid-19 lockdowns has made them the targets of opprobrium from governments, businesses and the general public. That spells a reputational death trap.
Insurers will argue that most business interruption policies, even those with infectious diseases clauses, do not cover Government-mandated closure orders due to a global pandemic. Many small businesses, with their finances as well as their owners’ hopes for the future all hollowed out, believed otherwise.
In the longer term, courts may end up being the final adjudicators on this. Embittered publicans, restaurateurs and other SMEs with the stomach for a fight may yet limber up to take them on. But in the medium term, insurers are about to receive the harsh lesson endured in recent years by bankers: it doesn’t matter whether you are really to blame for the whole disaster, because if everybody feels free to hate you, well then you are going to feel the pain one way or another over time.
A bad reputation is bad for business. Bankers are still widely derided, if no longer properly despised, over what happened to the Irish economy 12 years ago. That stench, that whiff of toxicity, still swirls around most of their interactions with regulators, Government and the media.
It is why Irish bankers are still effectively banned from receiving bonuses over a decade later and why they still have their salaries capped. It is why Lloyd "God's work" Blankfein of Goldman Sachs is still a figure of fun. It is why Minister for Finance Paschal Donohoe an eminently fair-minded man, feels duty-bound by public pressure to rarely give the banks or bankers an inch. It is why the Central Bank hammers them so hard over issues such as tracker mortgages. It is why I am writing this column.
As insurers find themselves herded into the dock, the reputational damage of being seen to be the bad guys is the one risk that they are going to find impossible to avoid. Somewhere under lockdown, our oft-maligned bankers must be sniggering into their claret, delighted to be the worst no longer.
It isn’t wise to admit it, but we love a good public stoning when we all feel we have social licence to engage in it collectively. There is a bloodlust to righteous conventional wisdom. In the emotional aftermath of the last financial crash, Irish bankers were reputationally buried up to their waists in dirt while the rest of us bounced rocks off their heads, screaming like the People’s Front of Judea.
It felt good, and it also had the added benefit of distracting us from our own failures. Yes, banks were cesspits of corporate governance. Yes, they were run by greedy men. Yes, they loaned too much money on property. Yes, they cost us a fortune. But bankers didn’t force the rest of us to rack up a Celtic Tiger spending bill for running the country that would put the House of Saud to shame; most of the subsequent hole in our public finance was down to repairing that mess, not on bank bailouts.
Similarly, even though insurers are in for a public hiding, they may have a point when they say that if their policies didn’t legally cover Covid-19, then they ought not to pay up; that if they all are made to pay up anyway, the insurance industry will probably go bust, and then where would we be.
Still, when he was trying to pressure them in recent weeks over business interruption cover and also to stump up for motor insurance rebates while our cars grow moss on locked down driveways, Donohoe warned insurers that their reputations are on the line. It probably looked preachy from the insurers’ point of view. But in fact, it was realpolitik.
Legislators in seven US states have already introduced Bills to seek to retrospectively make insurers pay up for business interruption due to Covid-19. With a weak government currently being formed here and an antsy Dáil, it would be little surprise if a similar political push was started by the Opposition, led by Sinn Féin.
Don't confuse any of what is written here as sympathy for the reputational mess that insurers find themselves in. The Irish insurance industry is being investigated by the European Commission for suspected cartel behaviour. It is a stretch to expect public and political understanding when a supranational body suspects you may be the sort of folk who break the law to cook up prices.
Similarly, the insurance industry made a mockery of calls for fair play in recent years when it pushed up general insurance premiums to boost its profits. All the while it mischievously blamed the price hikes on a fictional spike in claims due to so-called “compo culture”. It was pure spin.
When the numbers were finally totted up by the Central Bank and by some in media and politics late last year, it was obvious that there had been no correlating spike in dubious compensation claims at all. The compo culture problem was no worse than it had ever been. Insurance companies exaggerated the spike to excuse their premium increases.
Covid-19 has changed everything. It is going to change the insurance industry and our view of it. Rightly or wrongly, grab your helmets, insurers. You are going to get stoned, and not in a happy way.