Insurers were aware of the risk of a global pandemic, but their response to the current one could have been better, according to David Williams, managing director of underwriting and technical services at AXA Insurance UK PLC.
His comments come amid disputes about whether insurers should have denied certain coronavirus-related business interruption claims, and admissions that there are grey areas in some policies.
Speaking on an S&P Global Market Intelligence webinar about the future of European insurance, Williams said: "I don't think we can be blamed for failing to spot the risk, because we clearly did spot the risk."
He added that the industry's response to previous virus outbreaks, such as Severe Acute Respiratory Syndrome, or SARS, and the H5N1 avian flu strain, was "why we've ended up in a situation where 98% of business interruption policies in the U.K. don't include the impacts of COVID-19."
But he added that the industry could be blamed for continuing to use "old, archaic wordings that go back decades and just weren't fit for purpose." The need for the U.K. Financial Conduct Authority's business interruption test case, which is seeking a court order to clear up the coverage disputes, "is by and large down to insurers not heeding their own warnings and sticking with old wordings, not making the change," Williams said.
One of the lessons from the current pandemic is that once the industry has spotted a risk, "we need to respond to it completely and fully," Williams said. He also called on the industry to be more consistent in its approach, arguing that a lack of consistency "is part of what's causing the damage to our reputation."
Fellow panelist David Flandro, managing director of analytics at broker Hyperion Insurance Group Ltd.'s Hyperion X digital arm, agreed that the industry had not missed the potential risk of a pandemic. He referred to the PathogenRX pandemic insurance product launched by Marsh LLC, Munich Re Co. and epidemic risk firm Metabiota in 2018, saying that before the current pandemic, "people didn't want to buy the product because they didn't think it was a risk, but the insurance sector knew that it was a risk."
Flandro said the industry had to defend its contract language: "We can't just overturn contracts that were written because we don't like what was written in the contract. If the coverage is excluded, it's excluded." He also pointed out that the insurance industry's capital base was "much smaller" that the economic damage caused by the current pandemic.
But he also said the industry needed to demonstrate that it was there to help people. He acknowledged the efforts some insurers had made, for example, in rebating customers because of lower claims levels during lockdown, a trend that was widespread in the U.S. but more sporadic in Europe.
He also said Pandemic Re, a government-backed solution to future pandemic cover being discussed in London's insurance community, "is going to be a big part" of demonstrating the insurance industry's willingness to help people.