RBNZ warns of overseas BI claims impact

RBNZ warns of overseas BI claims impact

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There is a risk that as the size of overseas BI claim costs becomes clearer, overseas parent insurers may look to reduce financial support for their New Zealand businesses or seek higher dividends to shore up their financial positions, warns the Reserve Bank of New Zealand (RBNZ).

Meanwhile, no COVID-related business interruption (BI) class action or legal challenges like those seen overseas have been initiated in New Zealand to date, the RBNZ says in its May 2021 Financial Stability Report.

The Reserve Bank says that insurers believe the definition and interpretation issues assessed by courts overseas are not applicable for most New Zealand BI policies. The RBNZ is obtaining information from insurers to assess the size and scope of BI policies that could be affected if similar court rulings applied in New Zealand.

COVID and branches of insurance

The central bank says that other classes of insurance may still face COVID-19 related challenges for some time.

New Zealand’s economic downturn has been less severe than those in other countries. Insurers offering credit protection, loan repayment and redundancy insurance products may be exposed to greater claim costs if the New Zealand economy remains weak, but claims on those products to date appear to be at normal levels.

There remains a risk that further outbreaks could lead to significantly greater mortality rates and higher levels of claims on life insurance policies. There is also emerging evidence that COVID-19 can have recurring or long-lasting negative health effects on individuals who recover from the virus, and this may lead to elevated levels of disability and trauma claims over the long term.

While international travel volumes remain low, there is little demand for travel insurance products and the gross premium revenue of travel insurers is greatly reduced. For most insurers, travel insurance products are only one business line in a suite of products offered, so the impacts on their solvency and financial health are limited.

According to the Financial Stability Report, the insurance sector is in good shape. Insurers have retained capital during the period of economic uncertainty and solvency capital ratios remain high but they should be wary of overseas trends and future outbreaks.

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