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Insurers ‘heading for half billion BI hit’

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Australia’s general insurers could take a $535 million hit on coronavirus-related business interruption (BI) claims – and that's assuming all court challenges go the industry’s way.

The figure is contained within a Macquarie Research report on business packs, which warns the outlook for the segment is “murky”.

The report describes BI as “the elephant in the room” and says such cover is included in 35-40% of business pack policies.

“Our analysis concludes a $535m market loss could result if all court cases were ruled in favour of insurers and losses run for 18 months,” the report says.

Macquarie says the figure is “one of many possible scenarios” and excludes claims from the corporate and global segment.

The report says business packs could hold the majority of BI claims for Australian insurers, should court cases be found in favour of insurers.

IAG has a 22% market share in business pack, followed by Suncorp and QBE both on 19%.

Macquarie says the business pack segment is reliant on continuing government stimulus to support growth and employment, and warns that profitability is likely to dip.

“As affordability, claims uncertainty and policy volume growth challenges coincide, we could see one of the profitability mainstays in Australian commercial lines market tip into losses,” it warns.

Meanwhile, the Australian Financial Complaints Authority (AFCA) says two complaints have been identified to head a test case on BI wordings.

“We expect that proceedings will be issued in either the Federal Court or Supreme Court of NSW shortly,” an AFCA spokesman told insuranceNEWS.com.au.

“There is confusion over whether businesses affected by the pandemic lockdown are covered by their business interruption insurance policies.

“A threshold issue arises as to whether the Biosecurity Act applies to those policies that only reference the Quarantine Act.”

AFCA says it has had 30 complaints relating to BI and COVID-19.

“Once the outcome of the test case is known, it will provide the guidance that will enable AFCA to determine its approach in respect of future matters,” the spokesman said.