OECD on COVID-19 and the pandemic protection gap in insurance

A new report from the Organisation for Economic Cooperation and Development (OECD): Responding to the COVID-19 and pandemic protection gap in insurance examines how business interruption insurance against pandemic risk could be provided with support from governments, and some of the challenges and considerations necessary for establishing such a programme.

The COVID-19 pandemic and the measures taken to limit the spread of the disease have significantly disrupted economic activity in countries around the world, resulting in significant business interruption losses. The vast majority of these losses are likely to be absorbed by policyholders as, unless governments (or courts) intervene, few companies have business interruption coverage that is likely to respond to these types of losses – exposing the existence of an important protection gap for some pandemic-related business interruption losses.

The note states that governments are considering a number of programmes to support businesses that have faced significant disruption as a result of COVID-19. In many countries, this support include a variety of programmes aimed at ensuring the availability of financing for businesses or supporting their employees.

In a few jurisdictions, governments are also considering ways to ensure that insurance coverage responds to the business interruption losses that have been and are being incurred. Insurers and their associations around the world have indicated that most policyholders have not acquired insurance coverage that will respond to business interruption losses that result from COVID-19 business closures. The absence of (or uncertainty regarding) coverage is expected to lead to significant disputes between insurers and their policyholders over the coming months (if not years).

In the United States, for example, legislation has been proposed in a number of jurisdictions (including District of Columbia, Louisiana, Massachusetts, New Jersey, New York, Pennsylvania, Ohio, Rhode Island and South Carolina  that, if adopted, might require insurers to pay certain business interruption claims submitted by businesses that had business interruption insurance at the time COVID-19 measures were implemented – even where insurance policies have exclusions or other policy terms and conditions that ordinarily would preclude coverage for such losses.

At the US federal level, legislation has been proposed that would require insurers to offer coverage for business interruption losses resulting from a viral pandemic or related business closure orders and voids any previous exclusion of that coverage (subject to the payment by the policyholder of any additional premium for the new coverage). Policymakers or legislators in other jurisdictions (including France and the United Kingdom) have also made inquiries (or statements of expectations) on how insurers will respond to business interruption claims related to COVID-19.

You can access the entire report here.