The insurance sector is not materially exposed to the business interruption losses that could arise due to a cut-off in Russian gas supplies to Europe, according to a statement by Fitch.
Business interruption (BI) insurance policies typically only cover losses resulting from physical damage to business premises or production facilities. They do not cover losses caused by a supplier’s failure to deliver raw materials or the energy needed for a business to operate.
However, businesses suffering losses due to a Russian gas cut-off may be able to claim under political risk insurance policies. Fitch says it does not expect such claims to be straightforward as the policy wording is likely to be restrictive and it could be difficult for claimants to successfully contest claims rejected on the grounds of wording.
Jefferies issued a similar warning today, saying that gas shortages across Europe won’t be a significant source of BI claims.
European businesses could also be disrupted by government-led rationing of gas in anticipation of lower supplies from Russia, but losses resulting from this would not be covered by insurance.
If households are unable to maintain their heating through the winter, there could be an increase in claims due to burst water pipes. Factory shutdowns could lead to more claims due to industrial machinery breakdowns. Fitch says it would not expect claims indirectly linked to a gas cut-off to have a material impact on insurers’ profits.
Fitch believes that the insurance sector, like the wider economy, could be affected by the negative macroeconomic impact of a gas cut-off. Slower economic growth or a fall in GDP and even higher inflation would put pressure on households’ disposable income, leading to lower demand for insurance products.
