IBC talking to feds about future pandemic risk transfer

The Insurance Bureau of Canada is starting to look for a national approach to transferring pandemic risk, Ontario brokers have learned.

“IBC is in the early stages of exploring what a pandemic risk transfer mechanism would look like with the federal government,” said Jordan Brennan, IBC vice president of policy development, during the recent Insurance Brokers Association of Ontario annual convention.

COVID-19 was declared a pandemic Mar. 11 by the World Health Organization. Since then, Canada’s provinces and territories have implemented a variety of emergency measures. The Canadian Press reported Monday that new rules in Manitoba will limit public gatherings to five people. B.C. is limiting private home gatherings to six people. Ontario today reported 948 new cases and seven new COVID-19 deaths.

“The COVID crisis has elevated the awareness of the public to tail-risk events; to black swan events. Pandemic is one, but there are others,” Brennan said Oct. 21 during a keynote session at IBAO’s annual convention, held online to ensure social distancing.

Insurance companies are reporting COVID-19 related claims in a number of lines, including event cancellation, tuition reimbursement, travel, liability, and business interruption. It is not clear how much of the world’s economic loss from business interruption will ultimately get covered by insurance.

At Intact, for about 99.5% of its policies, business interruption coverage requires direct physical damage from an insured peril to be triggered, said Patrick Barbeau, Intact’s senior vice president of claims, during a conference call this past July discussing his firm’s financial results.

Intact is one of several insurers named as defendants in class-action lawsuits filed over the past several months in Canada. The proposed class actions allege insurers are in breach of contract in denying BI claims from commercial clients whose operations were curtailed as a result of the pandemic. Allegations that insurers are in breach of contract have not been proven in court.

The business interruption coverage disputes in Canada are at the early stages, said Laurie LaPalme, partner with Cassels Brock & Blackwell LLP’s insurance and reinsurance group, during her keynote at the IBAO annual convention. Sometimes, it can take a year just for a court to certify a lawsuit as a class-action, LaPalme noted.

In addition to exploring a pandemic risk transfer mechanism, IBC is also “pushing the federal government hard to commit to a solution for Canada’s earthquake insurance market,” Brennan told Ontario brokers.

The industry is facing a number of challenges, including a steady increase in property losses arising from weather-related natural catastrophes and persistently low interest rates, Brennan said during his keynote.

“Prior to 2002, the industry consistently lost money on its underwriting operations but could count on high investment returns subsidizing those losses. Since 2003, though, they have had to move towards underwriting discipline, and as interest rates continued to trend down, that underwriting discipline will have to increase to accommodate the fact that insurers cannot count on making money through their investments. A combined ratio north of 100% is simply no longer sustainable.”

Return on equity for the Canadian P&C industry has been trending downward for 15 years, said Brennan.

“Insurers have struggled to have an ROE of 4% or even 3%.”

Feature image via iStock.com/sam thomas