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Insurers Could be in for a tough fight if Governments Legislate Coverage

April 6, 2020

By: Anton N. Handal

Insurers could face worse than expected claims costs if they are forced by governments to make "ex-gratia" payments to businesses affected by coronavirus-related closures, Moody’s ratings agency warned Tuesday.

Moody’s said losses from claims in both life and general insurance were "manageable" at present, but that could change if insurers were made to provide compensation to crisis-hit businesses that were not directly insured against coronavirus-related damages. Insurers have come under fire from governments over their response to the crisis so far, with federal authorities in the U.S. weighing bills that would effectively force insurers into paying claims resulting from COVID-19.

On March 27, lawmakers in New York introduced a bill that would force insurers to retroactively cover business interruption claims from COVID-19, even if the policy did not originally insure against closure from an infectious disease or had specific exclusions. Similar bills have also been introduced in Ohio and New Jersey, causing the U.S. based National Association of Mutual Insurance Companies to warn over “irreparable harm done to contract law” and the prospect of widespread insolvencies across the insurance sector.

"It's one thing for governments to criticize insurers but governments shouldn’t transfer their obligations to protect citizens by transferring their obligation to the insurance industry,” said Anton Handal, Partner at Murchison & Cumming, LLP, San Diego.

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