Analysts at AM Best have warned that gaps in policy wording around the COVID-19 pandemic could still hurt some primary insurers, despite recent efforts to exclude coverage.
The rating agency noted that reinsurers were quick to react with exclusionary language during the mid-year renewals, due to concerns about the aggregation of exposure.
Likewise, commercial property policies have mostly been able to include explicit language excluding pandemics from coverage.
However, general liability policies such as umbrella, professional liability and excess liability have been less explicit, AM Best says.
Whereas reinsurance companies were able to tighten their wordings more readily and easily, analysts suggest that primary insurers may have to be driven by the legislative timetable due to court cases over the COVID-19 business interruption debate, as well as other issues.
“Primary insurers still face uncertainty about their pandemic exposure, with delays in regulatory processes,” AM Best said.
“The gap between primary insurance policies and reinsurance may expose smaller and medium-sized insurers that have concentration issues and are thus vulnerable to rating downgrades and insolvencies,” it added.
If AM Best is correct, primary insurers could find themselves on the hook for losses that their reinsurance does not cover.
This could expose some insurers to much larger losses than they had been anticipating, if they are concentrated on certain areas of risk.