The Association of British Insurers (“ABI”) has calculated that travel insurers in the UK could face at least £275 million of claims owing to Coronavirus, for holidays and trips that could not be fulfilled because of cancellations or general travel restrictions. To put this into perspective the Eyjafjallajökull volcanic eruption in Iceland in 2010 resulted in a mere £62 million of payments, a record at that time. Insurers have scrambled to mount a counter-offensive, by inserting Coronavirus related exclusions in new policies or even withdrawing product lines altogether such as income protection and travel insurance.
In one sense this is unsurprising and natural. Of course travel insurers are facing a raft of claims on their travel policies, and given the scale of the corona-chaos it is not overly shocking to see sums of the kind described above. The insurance industry acts as a shock absorber for us all in times like these, dampening the sharp edge of the blow dealt to individuals and businesses alike. There is no immediate need to worry about insurers’ ability to meet liabilities, as they are required to have a minimum resting solvency rate of 100% for this very occasion. Finally, before you shed too many tears for the poor old insurers, remember they have fairly considerable reinsurance policies of their own to spread the damage.
That said, call me cautious but I am inherently dubious of any mentality which smacks of “don’t worry about X [large institution], they’re too big to fail”. Memories of banking collapses in 2008 are still too fresh. Travel insurers, much like airlines, will have – one imagines – not predicted a shock quite this large and long. I am very concerned by the news that products are being taken off the market. Will this be a purely short term response to a freak aberration, or will it cause a longer term redefinition of product lines and insurer appetite for travel related risk? If the latter, this is sinister indeed. The availability of insurance to cover risks encourages consumers to make large purchases and is the cornerstone of entrepreneurialism (alongside, for example, the legal construct of the company).
Putting to one side my enjoyable though wholly unqualified ‘amateur economist’ hat, and approaching it as a travel litigator, I wonder whether there will be litigation flowing from attempts to avoid paying out, with close attention paid to the precise wording of policies. This could be in much the same vein as the five prominent Canadian airlines who might be – as has been suggested, albeit not formally – seeking to defend a recently pitched class action (concerning the extent of cancellation refunds owed contractually) on the basis that force majeure clauses are engaged. For further analysis please see here.