COVID-19 | Legal Analysis Center
April 20th, 2020
Original Version March 30th, 2020
*Updates added in April 20th, 2020 are in colour blue
Legal perspective of certain possible impacts of Coronavirus in the Insurance industry
The pandemic triggered by the COVID-19 virus in the world, and which consequences are still unpredictable and difficult to measure, will also have a significant impact on the insurance industry. The purpose of this analysis is to try to identify – from a legal perspective – some of the issues in which it will be essential for insurance companies to adopt solutions that allow them to face the challenges imposed by current circumstances, but in compliance with the technical principles of this regulated activity.
The following are issues to consider: the effect of non-payment of premiums without having to necessarily cancel coverage; legal discussions that will arise in the resolution of certain claims, the number of which will surely increase by the effects of the pandemic. On the other hand, the present context forces to accelerate the digitalization processes that companies had already initiated. The current situation of isolation requires urgent adjustment of many operating processes, but it is also required to face new sales, particularly in some types of insurance where demand is increasing.
Given the pandemic and the social isolation it is possible to expect new regulation in the insurance industry to regulate certain aspects of the activity, as it has already occurred with the postponement of the deadline to file financial statements or the exception to enable the action of claims adjusters to facilitate payment of losses.
Issues related to the collection of premiums:
As it is expected to happen with many contracts, the ability of policyholders to meet their obligations may be affected by the current pandemic. Failure to pay the premium should lead to a suspension of coverage in order to preserve the interest of the mass of insureds. However, there are many different situations that may have motivated the failure to pay premiums. Non-payment may be due to the impossibility of accessing the usual means of payment as a consequence of the mandatory isolation of the policyholder, or due to an economic difficulty of payment, or even due to a refusal of the insured to make the payment. It will be relevant to carry out an analysis of the circumstances that led to each specific case of non-payment of premiums to determine, among others, the existence of force majeure events, as well as to consider the different aspects of each type of insurance to determine if there has actually been a standing risk involved in the period. In addition, it is necessary to facilitate and make the payment of the premiums more flexible to avoid cancellation of coverage, but with an appropriate balance that guarantees the principle of premium sufficiency and compliance with the applicable regulations.
Issues related to claims:
As in any catastrophic event, it is possible to expect an increase in claims. It is probable that this increase will have a greater incidence in certain types of insurance, such as those related to life, health, and certain casualty coverages, such as business interruption. In this context, the specific clauses and texts of each of the policies must be duly reviewed and analyzed in order to identify the impact that could be generated for each insurer, taking into account the definitions of risks and existing exclusions in each policy.
Likewise, in this context of isolation, the challenge is to continue providing a quality service to the insured, guaranteeing the reception and payment of claims, in circumstances where their verification and settlement will be difficult. Also, the insurers will have the challenge of handling and requesting information and complementary documentation to analyze and process the claim, when there are peremptory deadlines imposed by the Insurance Law that imposes serious consequences in case of inactivity of the insurer.
It should be noted that by Administrative Decision of “Jefatura de Ministros” No. 524/2020, the activity of claims adjusters has been cleared of complying with the compulsory isolation in order to make possible the handle of claims.
On the other hand, the legal discussions which are anticipated will take place in the context of many pre-existing legal relationships may also have an impact on the definition of the coverage of a claim. Thus, the occurrence of a force majeure event in a contractual relationship covered by surety insurance can be decisive to determine the existence or not of a covered event under the policy. Also, the incidence of certain behaviors of the insured in the context of the pandemic, can generate different standards when evaluating the duty of prevention and mitigation of damages, as well as the existence of gross negligence as an exemption from liability. The health emergency situation modifies some behavioral parameters that must necessarily be considered due to their particular circumstances and their legal effects when analyzing a claim.
In this context, COVID-19 has been declared as an occupational disease by Decree No. 367/2020 in the terms of section 2 subsection b) of article 6 of the Occupational Diseases Law 24,557.
Challenges from the marketing and underwriting side of risks:
These events that have a worldwide effect tend to raise awareness among the population about the need for insurance. This has already started to be evidenced in some countries that are showing an increase in the sales of certain lines of business, such as life, health and unemployment insurance. It also seems possible to expect a higher demand in certain casualty coverages, such as business interruption and those related to cybersecurity. Remote work and remote connections create a greater vulnerability to unauthorized access, loss of information and other risks usually covered under these policies.
In the short term, this situation presents the challenge of accelerating and streamlining digital sales channels in compliance with regulation in force. This will require the insurers to put in place adequate mechanisms and procedures that allow the correct and indisputable identification of the insurable, as well as obtaining certainty about the validity of the declarations made on-line, preventing possible fraud. On the other hand, it imposes the need to act diligently, complying with transparency and information duties with the clients, in order to make sure that the products sold meet their expectations in the current circumstances. Finally, this scenario will oblige insurers to modernize their insurance products, in accordance with the market demand. Insurers will also be required to consider the changes in habits that will undoubtedly occur after this crisis which can contribute to aggravating or reducing risks. The design of new products will require drafting of new contractual texts and the obtaining the regulatory approvals. The Superintendence of Insurance of the Nation will have a relevant role to guarantee that these approval processes take place in a timely manner to satisfy the demand.
In the current context, it is uncertain if the entities will be able to comply with all regulatory requirements. It is expected that there will be exceptional regulations issued by the Superintendency of Insurance of the Nation to face specific situations, ensuring the continuity of the activity. Thus, by means of resolution No. 77/2020, the deadline to file the Quarterly Financial Statements closed on March 31, 2020 has been extended until July 31, 2020. Previously, through Circulars IF-2020- 17497739-APN-SSN # MEC, IF -2020-21436607-APN-SSN # MEC and IF-2020-25441839-APN-SSN # MEC, the deadlines to make filings within administrative procedures were suspended until April 26, 2020.
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