Insurer Sets Aside $865M for Business COVID Payouts

Insurer Business COVID payouts
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Insurer IAG has announced it has set aside $865 million for small business payouts that were impacted by the COVID pandemic, after a landmark court ruling said that certain businesses were eligible to make an insurance claim. 

The insurer in question, Insurance Australia Group – IAG – says that it has set aside $865 million for small business COVID payouts, after the New South Wales Supreme Court of Appeal ruled that businesses with a business interruption policy in place were eligible to make a claim. 

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IAG entered a trading halt shortly after the ruling was handed down by the New South Wales Supreme Court of Appeal, while competitors Suncorp and QBE reported steep drops in their share price value. 

In response, Insurance Australia Group made an announcement to the ASX that it was raising $750 in new capital to meet the anticipated claims that the company is expecting will be made by the owners of small and medium-sized businesses. 

Making the announcement, Chief Executive at the Insurance Australia Group, Nick Hawkins has said that “we may have taken a conserative view on the $865 million provision, but it feels like taking a conservative view would be prudent.” 

A report from the Australian Financial Review says that “the announcement of a $865 million provision was the first time IAG had revealed the scale of its exposure, far outstripping that of its main competitor, Suncorp, which said on Thursday it expected a $195 million provision would cover any extra business interruption claims.” 

That same report states that “as of July, about half of IAG’s 76,000 business interruption policies had ‘quarantinable disease’ exclusions that referred to the Quarantine Act, which was repealed in 2015 and replaced with the Biosecurity Act, the company said on Friday.” 

“The insurance industry has consistently maintained the reference to the Quarantine Act was an honest mistake, and the premiums were calculated on the basis that pandemics were not covered,” writes James Fernyhough. 

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Insurer Business COVID payouts

The insurer has issued a statement confirming that it has set aside $865 million for small business COVID payouts, stating that “given the NSW decision, IAG intends to recognise a post-tax provision of $865 million and is taking decisive action to strengthen its balance sheet via a fully underwritten institutional placement of $650 million and a non-underwritten share purchase plan to raise up to $100 million.” 

The company added that provisions would cover “all policies with wordings that include the Quarantine Act and without specific reference to the Biosecurity Act, which replaced the Quarantine Act,” adding that the capital raising would also cover “all policies with prevention of access extensions used on certain broker platforms which reference the Biosecurity Act.” 

“Prevention of access clauses vary in terms, but generally operate when actions of governments or other legal authorities cause business interruption by preventing or restricting access to premises,” the statement concluded.  

Peter Strong, the Chief Executive of the Small Business Organisations Australia has told Smart Company that the Court of Appeal’s ruling “opens up the door” for a raft of payments for small business COVID payouts. 

“That’s a good thing,” he said. “That’s what insurance is for. Hopefully, it means that businesses that have insured themselves in good faith will now collect insurance.” 

There is, however, speculation that IAG is in communication with the Insurance Council of Australia, and, according to Smart Company, is “seeking special permission to appeal the judgement in the High Court of Australia, meaning a decision could be delayed until 2021.” 

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