Why the consequences of a pandemic are not uninsurable (and should be insured)


Impeccable “sense of timing.” On January 15, the day Denis Kessler published in Les Echos an article according to which the pandemic risk would be by nature uninsurable, the decision of the British High Court of Justice fell in favor of compensation by the insurers of 370,000 British companies against the consequences of the coronavirus on their activities. Whatever the chairman of the SCOR reinsurance group claims, a large number of French and British insurance contracts do include compensation in the event of a pandemic.

An “uninsurable” risk… that is insured in practice.

Since the start of the pandemic, insurance companies have declared urbi et orbi that business operating losses during a pandemic would, by their very nature, be uninsurable. But the Coué method is not the surest route to the truth.

In the judiciary, the arguments of insurers are frequently rejected. From the initial summary decisions, it was affirmed that there could not be a general exclusion of compensation in the event of a pandemic. On May 22, 2020, the President of the Paris Commercial Court thus condemned Axa France to compensate a restaurant owner, ruling that the insurance company “does not rely on any legal provision of public order mentioning the uninsurable nature of a consequence pandemic.” As this risk was not excluded in the contract, it was up to Axa to cover the cost of claims related to Covid-19: actuarial principles do not make the right.

On December 22, 2020, the Annecy commercial court rendered a judgment on the merits which also condemned Axa, on the basis of a contract applicable to hotel-restaurant owners. The only thing that matters is the letter of the contract and, more often than “corporate” communication says, the contractual text includes losses after Covid in its guarantees.

According to data from the Prudential Control and Resolution Authority (ACPR) published on June 23, 2020, nearly 80,000 French companies will be able to benefit from compensation from their insurer. Better yet, if we are to believe the figures given by certain specialized brokers, it is rather 170,000 companies that would be covered against the financial losses caused by the pandemic.

As an additional signal in favor of policyholders, the High Court of London’s judgement of January 15, 2021 largely proved right to the sector regulator, confirming that insurance companies had the obligation to cover a large number of companies in the face of losses suffered during the health crisis. This final decision confirms and amplifies the first instance judgment that was rendered on September 15, 2020, and in which 21 insurance policy texts were reviewed by the British judge.

Simply put, many French and British insurance contracts actually include a guarantee against the risks of a pandemic. However, the insurance companies have adopted the strategy of remaining in an echo chamber. Presumably, from March 2022 onwards, they are expected to oppose to companies the implacable two-year limitation provided for by the insurance code. As Denis Kessler writes, “the judge must decide” for nearly 50,000 contracts; therefore forcing as many companies to launch lawsuits against insurers whose job is to deal with said lawsuits. … the earthen pot against the iron pot! French law, which does not allow the equivalent of the British “principle” trial procedure, forces companies to act alone against their insurer, creating de facto inequality to the detriment of the smallest and most vulnerable. Moreover / Worse yet, the latter are often threatened by termination of the contract from their insurer if they declare a “pandemic” claim.

The health crisis insurance scheme will be compulsory or perhaps it will not be.

In the future, a new insurance mechanism was desired by the government as well as by Parliament, in order to effectively cover businesses against the economic consequences of a health crisis. Denis Kessler asserts that a pandemic cannot be covered because only the companies most likely to be affected by such a crisis would be insured, according to a phenomenon of adverse selection: this is why only compulsory insurance allows mutualization, as it has worked for 39 years for natural disasters.

In France, no less than 1,297 municipalities have never been affected by a single natural disaster since 1982. Likewise, during a pandemic, some regions are more affected than others, such as border areas or those with a high population density. In the first case, a compulsory and mutualized scheme is nevertheless accepted by all, and within a simple framework: a compulsory guarantee added to existing contracts. We support the same solution for health catastrophe insurance: a compulsory guarantee added to the property damage insurance contracts of all companies, ultimately reinsured by the State beyond the capacity of insurers.

Such a project was one of those retained in the report of the working group on the management of exceptional risks, published on July 16, 2020. It included a double sharing of risks between not only the private and public sectors but also companies and insurance organizations. From this large-scale project, the government ultimately retained only “minor measures,” in the words of certain representatives of the professions concerned.

Valérie Faure-Muntian, Macronist deputy president of the “Insurance” study group at the National Assembly (and a former insurance company salesperson until her election) had nevertheless muffled: “We will not be satisfied with minimum proposals from insurers!” But insurance companies won over the government’s announcements in the end: the new insurance regime is stillborn. The government preferred a second option, namely the possibility for each company to build up provisions, accompanied by a tax incentive mechanism. The comple financial substitution made by the government in December does not meet the needs of small and medium-sized enterprises. Who will be led to believe that the creation of reserves aimed at insuring against a future risk constitutes the priority, or even a possibility, for businesses, restaurants, tourism and event professionals that are nearing extinction and a third administrative closure?

To repeat, a collective and mandatory plan is the only option to achieve risk mutualization and effectively meet the needs of all companies following the consequences of a pandemic. As for the geographical diversification of risks, desired by Denis Kessler, it was proposed by Generali, the Italian insurance group, in cooperation with the European organization of chambers of commerce and industry. The government, which generally worship any project provided it has European roots, preferred in this case the usual fiscal and financial solutions favored by the very French Inspectorate of Finance…