Impact on the Insurance Market

The pandemic due to the outbreak of the new coronavirus and the resulting social, preventive and mandatory isolation provided for by Decree No. 297/2020 and extended by Decrees No. 325/2020 and 355/2020 issued by the Argentine Executive impacts severely on the economy and will produce important effects on the insurance market. This article provides a brief overview of some of the main issues these measures impact on, from the point of view of coverages and reporting and loss adjustments.

 

Substantive matters

One of the main effects that the preventive isolation generates in the economy is, undoubtedly, the interruption of the business of those industries that are not exempted from complying with the isolation or that can only conduct their activities at their minimum capacity. This should prompt many insureds to look into their insurance policies to check whether their business is covered under the business interruption coverage that some policies include, such as operational risk, commercial business risk, fire and cyber risks. This is a situation that requires a specific analysis of the terms of each policy.

Article 61 of the Insurance Law excludes coverage for loss of profit in property damage insurance, unless expressly agreed. Property insurance usually and expressly excludes the coverage of damages arising from business interruption. Therefore, it will be important to make a thorough analysis of the terms of each policy to confirm if business interruption coverage was actually purchased.

When business interruption coverage has been purchased, it usually derives from physical damage to the insured’s property. Therefore, it is likely that policies may not cover damages caused by the pandemic or by the isolation itself, unless the insured can prove a relationship between the physical damage and the business interruption. The specific policy language is key to determine what constitutes property loss or damage and business interruption.

Another controversial point is the compensation period, which is usually limited to the period of restoration of the business. To set this period it will be crucial to consider some variables, such as the following: the due diligence and the speed of the insured in adopting the necessary measures to avoid business interruption or mitigate its effects; the date when the company was effectively in condition to overcome the interruption; when the effects of the isolation on the business started and when they ended, among others. All these variables –together with other duties imposed on the insured under the policy– should be analyzed, along with the specific circumstances and terms of each policy.

One of the main effects of the isolation on the economy and society is the exponential growth of remote work. In fact, since the beginning of the isolation ordered by the Argentine Executive, a large number of industries switched to working remotely.

This could affect cyber risks coverages that were purchased in a very different context. It will be important for remote work to ensure the security of the information that is handled by each insured and check whether the purchased coverage is applicable to the current circumstances.

To sum up, it will be key for both insurers and insureds to do a thorough analysis of the terms of the policies and the specific circumstances of the case, to determine if it is covered and its scope. Also, considering the circumstances in which the policies were taken out and the current context due to the pandemic and the isolation, it will be important to determine the actual risk status in case it is necessary to communicate any variation to the insurer.

 

Practical issues

From a practical point of view, the isolation will impact both on the reporting and the adjustment of claims.

Pursuant to article 46 of the Insurance Law, a loss must be reported within three days of being known, unless otherwise agreed. There is no doubt that today, the main insurance companies have the necessary infrastructure and provide their insureds with different means to losses in due time, without violating the isolation, either through a website, email or by phone.

However, it should not be ruled out that there may be specific cases in which, for force majeure reasons, the insured may only be able to report the loss after this period. It will be important for insurers to analyze those cases on a case-by-case basis, in order to mitigate the risk of potential claims.

Isolation will also necessarily impact on the adjustment of claims. Loss verification and adjustment involves tasks such as sending certified letters, requesting and analyzing additional information, obtaining experts’ opinions, revising judicial or administrative records, etc. These tasks can be carried out both by the internal staff of the insurance companies or by independent experts and loss adjusters and may involve either remote tasks or on-site tasks.

Although experts and loss adjusters were exempted from complying with the isolation by the Administrative Decision 524 issued by the President’s Chief of Staff Office, the wording of the Administrative Decision is inaccurate and, in our view, could bring up some questions regarding the actual scope of the exception. Without prejudice to the brief reference that we will make in this regard, each of these questions have been thoroughly analyzed in https://www.marval.com/publicacion/coronavirus-excepciones-al-aislamiento-en-materia-de-seguros-13630&lang=en.

Section 8 of article 1 of the Administrative Decision 524/2020 establishes “The following are exempted (…) from complying with the ‘social, preventive and mandatory isolation’ and the prohibition of movement, (…) in the terms established in this Administrative Decision: (…) Experts and loss adjusters of insurance companies that allow the adjustment and payment of reported losses to beneficiaries. In no case may their offices be open to the public and all procedures must be virtual, including payments”.

One of the questions that the Administrative Decision brings up is whether the exemption applies only to independent experts and loss adjusters or if it also applies to the internal staff of insurance companies. Furthermore, considering that the movement certificate application only provides the option for “Insurance companies and loss adjustment services that allow payments for car and motorcycle repairs arising from traffic accidents”, the question is whether the exemption applies to losses of any kind of insurance coverage or only to losses of motor-vehicle insurance coverage. Other questions that the Administrative Decision brings up are which tasks can be carried out under this exception –especially, if on-site tasks are allowed– and the status of obligations of insurers that are not actual payments.

Even when some of these questions could be clarified, in principle, by the local health protocols issued by each jurisdiction that the Administrative Decision affects, it is not clear the scope that the health protocols could have regarding exemptions that were not expressly established by the Administrative Decision, and if the Administrative Decision could be modified by such protocols.

We understand that insurance companies could be in a more difficult situation than that they were prior to the Administrative Decision. In fact, before the Administrative Decision, experts and loss adjusters were obliged to comply with the isolation, so it seemed justified that the adjustment tasks that could not be carried out remotely were done after the lifting of the isolation.

Although the Administrative Decision exempts experts and loss adjusters from complying with the isolation, its scope is unclear and inaccurate. Therefore, insurers now have to choose between making a broad construction of the exemption, which would allow them to carry out several tasks but at the same time could lead them to breach the isolation, or making a more restrictive construction of the exemption, which would imply a greater risk of being held responsible for failing to verify and adjust reported losses on time.

In this scenario, it will be important for insurers to continue their loss adjustment processes in good faith and to be extremely careful not to carry out their tasks beyond the limits established by the Administrative Decision. In addition, insurers should use all available virtual resources and communicate clearly and precisely to insureds the real status of the adjustment process and the impediments they may be facing. Likewise, they should interrupt these actions only when they are faced with a real impediment that cannot be overcome with an alternative remedy.