Having clear policy wording is one component of the “social” part of environmental-social-governance (ESG) practices, suggests senior official with Canada’s financial services regulator.
“It’s increasingly clear that insurers need to focus on policy wording to avoid adverse court decisions as the social aspects are more in favour of claimants,” said Neville Henderson, assistant superintendent at the federal Office of the Superintendent of Financial Institutions (OSFI)’s insurance supervision sector.
During a virtual fireside chat, Henderson was asked by Chris Cornell, partner and national sector leader for insurance at KPMG Canada, what role insurers need to play in the social element of ESG.
Henderson said many disputed business interruption claims – both from cyber events and the COVID-19 pandemic – are working their way through courts both in North America and elsewhere.
Policies that are silent – on whether BI is covered for pandemic or a cyber event “are very vulnerable to an adverse [court] decision,” Henderson said during KPMG Canada’s 30th annual insurance issues conference.
“The social element of ESG also relates to disclosure, particularly with respect to issues like [greenhouse gas] emissions and carbon. Investor activist groups have been influencing board meetings and have been successful at changing the composition of some boards where individual board members were not focused on the social issues of disclosure. So the pressures are with us.”
With regard to business interruption coverage, Henderson did not mention any specific claims disputes before courts.
The Supreme Court of the United Kingdom ruled this past January against several insurers in a test case brought by the Financial Conduct Authority.
In Britain, the FCA took eight commercial insurers to court in the summer of 2020 over more than 21 specific policy wordings. The idea was to settle claims in Britain more quickly than if every client took every individual insurer to court in separate lawsuits.
In September, 2020, the High Court of England and Wales issued a mixed ruling, with some policy wordings covering pandemic and others not. Both sides appealed and on Jan. 15, 2021, the Supreme Court of the United Kingdom ruled largely in favour of the FCA.
There were two broad categories of wordings in the FCA test case. One is coverage for income loss if the client’s operations are curtailed because of a “notifiable” disease within a certain distance (one mile or 25 miles) of the client’s premises. The other is coverage for BI arising from action by a government or civil authority which prevents or hinders access to the premises.