May 10, 2021 by Jason Contant
Canadian insurers may introduce new communicable disease exclusions to harmonize policy language with their revised reinsurance policies, Insurance Bureau of Canada (IBC) said recently.
International reinsurance markets introduced a new communicable diseases exclusion in many countries over the past few months, said Vanessa Barrasa, IBC’s manager of media relations. In Canada, it was largely introduced on Jan. 1, 2021.
“As a result, we many see Canadian insurers introducing new communicable disease exclusions to harmonize the policy language with their revised reinsurance policies.”
In December 2020, IBC members clarified their liability exclusion and added an exclusion for property to the IBC advisory wordings (which insurers can independently adopt or revise). IBC advisory wordings were amended to exclude communicable disease, Barrasa said, and coverage for property losses due to communicable disease were also excluded.
Liability for communicable disease transmission has been excluded in IBC advisory homeowners’ policies since at least 1996, while reinsurance property treaties renewed after May 2020 contained a communicable disease exclusion. Contamination of property or claims made against insureds for spreading a disease have generally been excluded for many years in home insurance policies.
Desjardins Insurance has already adopted the exclusion. “The international reinsurance market is now using [a] communicable diseases exclusion,” a Desjardins spokesperson told Canadian Underwriter last week. “Therefore, Desjardins wanted to define its policy wordings.”
It’s not clear how many of Desjardins’ policies would be affected.
The rationale behind pandemic exclusions is that pandemic risk is generally uninsurable. That’s because the funndamental premise of insurance is that insurers will use a pool of premiums collected from the many to pay for the losses of the few. But global losses caused by a pandemic affect everyone, not just a few, and so the insurance proposition breaks down under these kinds of conditions.
“Insurers assume risk when they can selectively spread that risk across large geographical areas,” Barrasa said. “The theory being, losses in one location do not affect other locations. Pandemic risk is not confined geographically, hence the risk cannot be spread.”
The COVID-19 pandemic has highlighted a number of issues for Canadian P&C insurers. For example, last year, Ontario long-term care homes reported difficulty securing liability insurance for COVID-19, the Canadian Press reported. And many small businesses were hit hard after pandemic-related lockdowns.
Several businesses have filed class action claims for business interruption losses. These types of BI claims are generally not covered under commercial general liability policies, which require physical damage as a trigger.
Feature image via iStock.com/Jakub Rupa