‘Not enough capital’: Insurer says government to pay for COVID-19

By Charlotte Grieve

Insurance Australia Group chief executive Peter Harmer says there is not enough capital in the insurance industry globally to cover the financial fallout from COVID-19, as the insurer posted a 60 per cent fall in profit.

Mr Harmer said it was the government’s responsibility to foot the bill for the pandemic ahead of the NSW Supreme Court’s decision on whether insurance policies that exclude pandemics are valid.

“There is a size of loss that becomes quite systemic where the government needs to act as a shock absorber,” Mr Harmer said. “The government has an interest in making sure we have a viable, sustainable industry.”

IAG chief executive Peter Harmer said catastrophic weather events and the pandemic in the second half had undermined the company's bottom line.
IAG chief executive Peter Harmer said catastrophic weather events and the pandemic in the second half had undermined the company’s bottom line.CREDIT:ANTHONY JOHNSON

The test case will determine if insurance policies that rely on an outdated definition of “quarantinable disease” mean insurers would be forced to cover losses associated with COVID-19 under business interruption policies.

Mr Harmer said the case was launched by the industry’s lobby group, the Insurance Council of Australia, to extinguish any “lingering doubt” about the validity of industry-wide pandemic exclusions.

“It’s probably worth explaining why insurance policies around the world exclude things like war, terrorism and pandemics. Those events will impact many, many, many customers all at the same time,” Mr Harmer said. “There’s simply not enough capital in the insurance industry globally to be able to insure these events and payout claims.”

The comments come as IAG reported its net profit after tax was $435 million for the financial year, falling by 59.6 per cent compared to the same time last year.

IAG confirmed it would not pay shareholders a final dividend for the first time since the company was listed in 2000, after cash earnings fell by 70 per cent.

The insurer said the financial year was a “tale of two distinct halves” as its operating performance for the first half was strong and broadly in-line with expectations but the catastrophic weather events and pandemic-related investment losses in the second half undermined the company’s bottom line.

The group’s insurance profit was down by 39.5 per cent to $741 million, impacted by higher reinsurance costs and a spike in claims after the summer bushfires and hail storms across NSW, Victoria and Canberra.

IAG reported it paid $904 million in natural perils claims, exceeding its revised guidance of $850 million and original allowance of $641 million, prompting Mr Harmer to call for greater action on climate change.

“We need to do things at a macro level, the government level, but also an individual level,” Mr Harmer said.

The insurer’s sliding profits were made worse by a “relatively severe hit” to investment income as a result of volatile market conditions compounded by the historically low interest rate environment….

This article is from the Sydney Morning Herald, you can read the full article here: