Contingency

In this chapter of our Annual Insurance Review 2021, we look at the main developments in 2020 and expected issues in 2021 for contingency.

Key developments in 2020

Like much of the insurance market, contingency risks were dominated in 2020 by COVID-19. This was entirely unforeseen, not only by the insurance market but by governments, businesses and individuals worldwide. Last year, the key emerging risk in the contingency market was thought to be adverse weather conditions. COVID-19 has trumped this. The virus has resulted in widespread postponement and cancellation of events, from conferences to concerts to cricket matches. The most high profile among these was probably the 2020 Tokyo Olympics, which were rescheduled to commence on 23 July 2021, although it is still not entirely certain that this date will not be moved once again.

Many artists, performers and organisers will have found the consequences of cancellation severe due to communicable disease exclusions that are often contained in contingency policies. Some organisers may even have faced a double hit. Having organised the event once and postponed it from early in the year for a short period (say, 6 months) in the belief that by then the world would have COVID-19 under control, they may now have found that even the rescheduled event cannot proceed.

By the same token Insurers, even those with robust exclusions for communicable diseases, will have found their wordings being placed under intense scrutiny. Some policy wordings that carve out communicable diseases can contain a 'write back' providing cover in certain situations, including, for example, where the government orders events to close. Government statements in the UK have been notoriously woolly leading to disputes as to whether the cover is triggered. This has led to increased disputes as to whether a claim ought to be covered.

What to look out for in 2021

Despite the emergence of several vaccines , COVID-19 is not going to go away, at least in the short term. Producing and administering a vaccine in large numbers is likely to be a considerable logistical exercise that will take time to implement. In the meantime, COVID-19 may well still lead to tightening of exclusions in contingency policies, especially around communicable diseases. To obtain cover without a communicable diseases exclusion, is likely to be very expensive if it is possible at all.

The upshot of this may well be that in 2021 only very small or very large events will be able to proceed. Small events may proceed either on the basis that the organiser will risk not obtaining insurance for communicable diseases or on the basis that the Insurer might consider the risk sufficiently low to write it without a communicable diseases exclusion and still charge only a modest premium. Large events may proceed on the basis that the organiser can afford the premium involved. Oddly, whilst this might hold up in the short term, in the medium term this may have a countercyclical effect. The restrictions on cover could mean fewer events being underwritten as organisers elect not to proceed without cover for communicable diseases. This could drive a glut of capacity in the market, thus pushing premiums down.

A comprehensive roll-out of an effective vaccine might stabilise the position but it would seem likely that COVID-19 will have one lasting effect: broad exclusions for communicable diseases will be part of much contingency cover for the foreseeable future. 

Authored by Damon Brash.

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