Challenges for Insurers from the COVID-19 Pandemic 

June, 2020 - Dr Marta Kozlowska, adwokat, Karolina Kozlowska, Dispute Resolution & Arbitration practice

The unstable economic situation connected with the COVID-19 pandemic is also impacting the insurance industry. Dependent on global phenomena and trends, the insurance market will soon have to face anew economic reality, develop appropriate solutions for clients, and prepare to defend against claims.

Trends on foreign markets show that the actions taken by insurers in paying claims under insurance policies will be driven not only by the wording and interpretation of insurance contracts, but also by market expectations.

Trends on international markets

In the UK, the first collective actions have already been filed against insurers. Clients are demanding coverage of costs connected with interruptions in business operations, even though events connected with pandemics are in most instances excluded from insurance coverage.

According to specialists on the British insurance market, insurers’ direct exposure to costs flowing from the epidemic is limited, but the amounts of potential claims may nonetheless be high. According to representatives of the London-listed insurer Hiscox Ltd quoted by the Financial Times, the scale of potential COVID-19–related claims may exceed USD 150 million. In the article, London insurance group Beazley PLC estimated the cost of such claims at USD 170 million. Here time will work against insurers. If the pandemic lasts longer than six months, the level of claims could grow significantly.

The British government is negotiating with insurers to develop anti-crisis solutions. The discussions are centred around introducing arbitration procedures for resolving insurance policy disputes, and support from the country’s Financial Ombudsman Service. This approach may offer an alternative to traditional litigation and expedite the payment of claims.

There is also more and more pandemic-related litigation appearing on the American market. One example is suits against cruise operators, such as Celebrity Cruises, pursued by both passengers and crew, alleging numerous acts of negligence exposing the plaintiffs to infection by the coronavirus. Insurers may also be brought into such litigation.

But it appears the American insurance industry may find support in opposing a flood of claims. The US government is calling for limitations on insurers’ liability not only for damages claims, but also for claims by businesses for interruptions in their operations.

In Austria, a class action is being prepared against the ski resort village of Ischgl in the Tyrolean Alps, where many coronavirus infections broke out in March 2020. Despite the danger, the ski resort continued to operate. According to the Austrian Consumer Association, the suit may be joined by 2,500 or more people.

Along with the growing number of disputes involving businesses, there is also a risk of assertion of claims for damages against insurers. It appears that businesses facing similar class actions will have to deal with the problem of demonstrating that they are not responsible for specific infections. Moreover, some of them at least will not be able to count on insurance protection if they reach a settlement.

EIOPA guidance

The European Insurance and Occupational Pensions Authority, an independent body which is part of the system of European supervisory authorities and works in close cooperation with national insurance regulators, points out that under the Solvency II Directive (2009/138/EC), European insurance companies must hold adequate own funds to cover their solvency capital requirement. The solvency capital requirement, based on risk assessment, enables insurers to absorb significant losses and gives reasonable assurance to policyholders and beneficiaries that payments will be made as they fall due.

EIOPA has also presented guidance for insurers and intermediaries on measures to be taken to mitigate the impact of the COVID-19 pandemic on consumers. In particular, they should:

  • Provide clear and timely information to consumers on contractual rights
  • Treat consumers fairly and be explicit in all communications
  • Inform consumers about contingency measures that insurers and intermediaries are taking in areas such as continuity of services and how these measures can impact their contractual relationship and the services provided by insurers
  • Continue applying product oversight and governance requirements, taking into account the impact of the COVID-19 outbreak, and where necessary carry out a product review
  • Consider the interests of consumers and exercise flexibility in how they are treated, where reasonable and practicable—for example, the current situation may call for flexibility in terms of processes and timeframes to allow consumers to retain important coverage that would otherwise be lost.


It is too early to predict what costs will be incurred by the insurance industry in connection with the pandemic or how many related lawsuits insurers will face, but the specialists quoted by the Financial Times estimate the value of such proceedings on the global insurance market may be as high as USD 40 billion.

Insurers should thus not only maintain continuity in serving their clients, but also ensure that they are prepared to conduct and manage litigation under evolving market and social conditions.





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