Minister for Finance Paschal Donohoe has warned insurers they should offer some refunds to motorists because traffic has slumped during the coronavirus crisis at a time when profits are high.
During a virtual meeting yesterday afternoon, he also told the Insurance Ireland lobby group the reputation of its members is at stake amid concerns that some are relying on fine print and technicalities to avoid business interruption payouts as much of the economy is in Covid-19 lockdown.
“The main message that I wanted to convey to the insurance industry, through Insurance Ireland, is the need for the industry to help itself and do the right thing by customers during this time. I made it clear that failure to do so will be very damaging for the longer term reputation of the sector,” said Mr Donohoe after the meeting.
“In relation to the treatment of motor insurance policyholders, I pointed out that a combination of the very profitable part of this market over the past 12 months, when combined with what is likely to be a significant reduction in claims for this period, provides a strong case for some type of refund of consumers’ motor premium packages.”
Insurance Ireland said that while motor insurance rebates were not occurring to date in the UK or Europe, it “committed to reflect on the Minister’s concerns with their members as a matter of urgency”.
Most commercial policies that cover losses in the event of business interruption do not offer coverage for infectious disease. However, insurers are generally rejecting claims even on policies that mention notifiable diseases on the basis that they were meant to cover isolated outbreaks and not a pandemic.
“On the issue of business interruption insurance, insurers understand that this is a cause of concern in the marketplace. This is a complex issue. No insurance market in the world provides widespread insurance coverage for pandemics and Ireland is no exception,” Insurance Ireland said, adding that firms would “adjudicate each claim fairly and consistently in line with the policy terms and conditions”.
The Central Bank has ordered insurers that it regulates to submit detailed breakdowns of their business interruption policies by the end of April, including data on contracts with ambiguous language and how these are being dealt with.
The bank said in a letter to insurance chief executives late last month that, while most policy wordings are clear in terms of coverage provided and what exclusions are in place, “where there is a doubt about the meaning of a term, the interpretation most favourable to their customer should prevail”.
The clear risk for insurers is that they may find themselves caught up in a Central Bank examination similar to the tracker-mortgage debacle, which has cost the banking industry €1.5 billion, according to industry and regulatory sources.
Goodbody Stockbrokers analyst Eamonn Hughes said in a note to clients on Friday that the industry's cases had been helped as the UK Financial Conduct Authority, the supervisor of the parent groups of some of the top insurers operating in Ireland, said on Thursday that it estimated most business policies "have basic cover, do not cover pandemics and therefore would have no obligation to pay out in relation to the Covid-19 pandemic".
“However, the Central Bank and Minister for Finance here look set to keep up the pressure on the industry in Ireland, so it looks like this issue is going to run for some time, probably with little clarity, but with risks lingering for the insurance industry,” Mr Hughes said.