Reinsurance News

No adjustment to IAG’s provision for business interruption losses

23rd March 2022 - Author: Luke Gallin

Australian insurer IAG has said that at this time, there will be no adjustments to its $1.222 billion net provision for potential business interruption claims related to the COVID-19 pandemic.

iagAs we reported yesterday, numerous insurers and reinsurers are seeking to contest the verdict of Australia’s pandemic test case and have filed documents for an appeal.

The previous judgment, delivered by the Full Court of the Federal Court of Australia on February 21st, 2022, substantially upheld the arguments of insurers by finding that in the majority of cases, insurers are not liable to indemnify the policyholders.

While positive for carriers, the judgement did also find that certain businesses could make valid claims on pandemic losses on certain limited policies, provided the cause of losses could be identified.

This has led to a number of insurers and reinsurers, including Swiss Re, Chubb, and IAG, to look to contest the verdict of the pandemic test case in Australia’s High Court.

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Insurer IAG notes that the 28-day deadline for parties to file an application to seek leave to appeal the judgement in the second business interruption test case has now passed.

Yesterday, reports claimed that IAG is appealing a specific ruling on its client Meridian Travel, after the court determined that 90% of the business’ revenue was caused by COVID-related restrictions.

The Insurance Council of Australia (ICA) said that IAG is contesting whether JobKeeper payments are to be taken into account when calculating the amount of insurance to the policyholder.

IAG has confirmed this, stating that it has filed an application for special leave to appeal the Full Court’s finding on JobKeeper payments.

Although the trial judge held that JobKeeper payments should be taken into account, the Full Court took a different view, and the ICA views this as an important issue for policyholders and insurers throughout the industry given the number of businesses that participated in the JobKeeper program.

IAG says that as the legal position becomes clearer and claims experience emerges, it intends to refine its prediction of the ultimate claims cost and will adjust its provisions accordingly.

However: “At this stage, there will be no adjustment to IAG’s $1,222 million net provision for potential business interruption claims,” says the insurer.

“Current indications are that a release from the provision will occur and is likely to be recognised over time, subject to court processes and the time required to allow for claims development,” it adds.

The company concludes that it looks forward to these issues being resolved as quickly as possible for its clients with business interruption protection.

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