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Law360, London (April 6, 2020, 12:12 PM BST) -- The financial stability of the insurance industry could be at risk if governments ordered policies to be retroactively changed to allow businesses to claim for disruption caused by COVID-19, an international trade body said Monday.
The Global Federation of Insurance Associations said that insurers might not, if they are stretched too far, have the capital to pay out claims other than coronavirus that they are contractually required to meet.
The warning came amid mounting criticism of the sector's handling of claims from businesses stricken by closures. Lawmakers in the U.S. are considering whether to demand that insurers must change policy wordings to retroactively cover coronavirus-related losses.
"Retroactively changing the terms of policies would not be an appropriate way to address the large-scale financial impacts of the COVID-19 pandemic," the federation, which represents 40 insurance trade bodies around the world, warned in a statement.
"Such actions could threaten the entire financial stability of the insurance industry and significantly undermine insurers' ability to pay other types of claims," the statement added. "In turn, this could exacerbate the negative impacts the economy is currently experiencing."
Business interruption policies do not cover losses from government lockdowns, except where specific notifiable disease cover exists as an add-on. Even then, many policies require there to be an outbreak on site before they pay out.
Lawmakers in New York have floated a bill that would see all business interruption policies in force amended to provide additional cover for coronavirus-related lockdowns — a measure that has sounded warning bells across the world for the industry.
The Association of British Insurers said on Friday that the proposals were a "shortcut to insolvency" for insurers.
In a separate move on Monday, the Global Federation of Insurance Associations said that many regulators around the world have requested information on the solvency status of insurers, which has added to the workload of many companies.
"Coordination between governmental authorities — and the allowance of some flexibility to account for existing administrative burdens — will be very important in allowing the industry to concentrate time and resources on serving policyholders and confronting the pandemic," the body said.
--Editing by Ed Harris.
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