Insurers have lessons to learn from pandemic
Insurers can learn lessons from the impact of the Covid-19 pandemic, a leading insurance law expert told an international audience.
Nick Williams, a partner and head of the insurance division in the London office of law firm Kennedys, was speaking on a panel at the 17th annual Bermuda Captive Conference, which wrapped up yesterday.
He said the scale of the insurance claims that have been made around Covid-19 exceed anything previously known, and include property, business interruption, contingency, travel, healthcare, and directors and officers.
Mr Williams added that governments in some jurisdictions have initiated test legal cases, while other decisions have arisen out of the normal court process, and still others have been made by arbitrators.
Decisions have differed by jurisdiction, and have become “a little more unpredictable” due to the virtual nature of court cases in contrast to litigation conducted in person.
Addressing virtual attendees at the conference, Mr Williams said that the temptation, when one has a peril, is to focus on the direct effects of that peril.
He said: “What this has shown us is that when you have something on this massive scale, which has created the problems it has, then just as important as the direct result of the peril are the effects of the government action in response.”
Mr Williams added: “What has actually caused much of the ripple effect has been the government action, and of course that is very significant when you are considering whether and how a policy responds.
“So the first lesson, I would say, is consider your policies in that context because this sort of thing could happen again.”
He said: “The second lesson is that ‘Black Swans’, as this certainly was, do not respect borders. They don’t respect geographical borders, but nor do they respect borders and boundaries between different insurance policies.
“Certain Black Swans can impact a full range of insurance risk products. We should therefore stop thinking in silos.
“Linked to that, I think we have probably all been shocked to realise that, having spent in the past plenty of time ‘war-gaming’ major insurance scenarios, including situations where there has been a pandemic, the reality has actually turned out to be completely different from what we experienced in our war games, and far more overwhelming.”
Mr Williams added: “It is perhaps concerning to realise that the next ‘Black Swan’ could be another virus; this might be a cyber virus. One could easily envisage that we experience a similar complete shutdown of the world, in the way we have with this one, and some of the same insurance challenges might well emerge but there would of course be additional ones because you have the cyber angle to consider, which would give rise to all sorts of additional issues.”
He asked attendees: “In general terms, when you consider the range of new ‘Black Swans’ which could appear, do you consider your insurance and reinsurance programmes are fit for purpose? I think that is a really good question to pose yourselves.
“One of the main lessons of the Covid experience, I would suggest, is that it’s dangerous just to examine the efficacy of one part of an insurance policy or indeed one part of an insurance programme, whether it’s an exclusion or whatever, in isolation. The policy and the programme should be looked at holistically.”
Mr Williams said further takeaways include that the choice of law which is going to apply to any interpretation of a policy is “absolutely crucial because you get different results under different laws”.
Also, the jurisdiction of where any dispute will be heard “is incredibly important. Look at the way the different jurisdictional courts have reacted around the world.”
He added: “As companies which operate captives, what I would say to you, is that I suggest this experience has also emphasised once again that the interface between insurance policy and reinsurance policy is crucial, and can lead to all sorts of complications if it’s not the subject of very, very careful attention.
“Finally, I would suggest, would it not be sensible to start a conversation now with other stakeholders about what everyone could do better next time around?
“I am sure your brokers and reinsurers would welcome such a discussion, maybe not now but when the dust has settled and we have all got rid of our masks.”
Mr Williams was joined on the panel by Eric Butler, director, global health and wellness, for London-based Generali Employee Benefits; Dr Edward Fitzgerald, head of healthcare at KPMG in Bermuda; and moderator Brian Quinn, managing director of Bermudian-based Granite Management Ltd.
The theme of the two-day conference, which attracted virtual attendees from some 30 countries, was “Resilience”.