Pandemic insurance will most likely become a thing of the past after the experiences of the COVID-19 outbreak, says Aviva Insurance Company of Canada’s chief executive Jason Storah.
The head of Canada’s third-largest property and casualty insurer had a front row seat to the early days of COVID-19 when the virus shut down more than a million companies across the country – including many Canadian dentists who had a coveted insurance policy that promised a payout of up to $20,000 in the event they had to close because of a pandemic.
Almost exactly one year ago, Mr. Storah found himself in a battle with the dental community after they were left in limbo when their claims for business-interruption coverage – which specifically listed pandemics – were not being processed.
The stalled payments were the result of a legality in government wording around lockdowns and what classified as a “forced closure.”
In the end, after several months, Aviva says “every claim” was paid to the thousands of dentists who had purchased the policies. But the experience also left a glaringly obvious problem with pandemic coverage.
“The fundamental principle of insurance is that the premiums of the many can pay for the claims of the few,” Mr. Storah said during a video interview with The Globe and Mail. “When you think about the impact of the pandemic – how widespread it is and how profound it is – it breaks that principle, which is why pandemic insurance isn’t widely offered by insurance companies.”
Several class action lawsuits (which are not yet certified) have been filed against 17 major insurers – including Aviva – by Canadian businesses, which claim that the loss of business attributable to the COVID-19 pandemic should also be covered under more traditional business interruption policies.
Aviva’s enterprise insurance policies – separate from its dental pandemic coverage – include loss of business income as a result of an outbreak of a contagious or infectious disease but do not specifically cite pandemic outbreaks.
Aviva is unable to comment as the “matter is still before the courts,” but according to court documents, the insurer denied the claims in early June.
Aviva’s dental pandemic coverage, which is not a part of the class action allegations, was “unique” to the dental community in citing pandemic outbreaks in the policies, and was not a part of the company’s standard policy wording. As of March, 2020, Aviva no longer offers the pandemic inclusion in new policies – and Mr. Storah says he cannot foresee any insurance company being able to offer similar coverage post-pandemic.
“It’s impossible to think that an event like a pandemic is something an insurance company will be able to cover – both in terms of offering coverage at premiums that would be reasonable and also in terms of being able to pay out claims that would be meaningful to the customers,” he says.
A subsidiary of London-based Aviva PLC , Aviva Canada offers property and casualty insurance to more than 2.4 million Canadians. The Markham, Ont.-based company underwrites policies for home, automobile, travel, group and businesses insurance. Despite Canadians no longer being able to travel, and with fewer drivers on the road, Aviva Canada’s operating profit, as reported in the parent company’s financials, increased by 50 per cent to £287-million ($498.4-million) in 2020, up from £191-million the year prior.
Mr. Storah says the pandemic has been the “most challenging” insurance event the industry has ever seen, but it will be an event that “we will be able to put behind us.”
“[COVID-19] has certainly highlighted the importance of insurance and the importance of people – and insurance companies – being really clear on what is actually covered [in their policies],” he adds. “But I firmly believe that we are going to put COVID-19 in the rear-view mirror.”
What Mr. Storah isn’t as confident about getting past is climate change.
“In insurance we always talk about those one-in-100-year events – and what we are seeing are those events are now happening more frequently than every 100 years.”
Insured damage for severe weather events across Canada has been steadily rising – reaching $2.4-billion last year, according to Catastrophe Indices and Quantification Inc., which provides analytical information on Canadian natural and human-made catastrophes.
Last summer’s Alberta hailstorm that hammered Calgary residents was one of those events, leaving an estimated $1.3-billion in damages – one of the most expensive storms in Canadian history.
From 1983 to 2008, total weather-related losses nationally, on an average annual basis, were about $422-million, according to data provided by the Insurance Bureau of Canada. Over the past decade, those average annual costs have spiked to about $2-billion.
“Climate change is hitting more and more of our customers and becoming much more expensive,” Mr. Storah says. “Sometimes there is no amount of rebuilding that can make up for a loss. And we see that in climate-related floods, hailstorms and wildfires.”
Globally, Aviva PLC has set an aggressive target to become a net zero carbon emissions organization by 2040, knocking 10 years off most of its competitors targets, Mr. Storah says. The goal in Canada is to look at the company’s internal operations first and reduce its own carbon footprint and then work with suppliers, partners and vendors to do the same.
Amanda Blanc, Aviva PLC’s chief executive officer, recently announced that the insurer – which operates in 16 countries including Canada – would crack down on some of its largest commercial clients if they could not do better with their own carbon footprint, warning they could lose insurance coverage in the future.
By the end of 2021, Aviva PLC will stop underwriting insurance for companies making more than 5 per cent of their revenue from coal or certain fossil fuels, unless they have signed up to the Science Based Targets initiative, backed by several partners including the United Nations Global Compact and the World Resources Institute.
Ms. Blanc said in a news release there is no consistent global set of standards “but the urgency of the climate crisis means we can no longer wait for everything to be neatly laid out before we act.”
Sitting in his home office in Toronto, Mr. Storah says he is looking forward to the day COVID-19 is no longer the topic of conversation and he is back to work in person – where he usually splits his time between Aviva’s office in downtown Toronto and the company headquarters, about 30 kilometres away.
“When I think of the younger generation of people and our children, they are going to live through COVID and remember it as an event that happened in their lives,” he says. “Climate change is still on the road ahead of them. And we are a long way from being able to say that climate change is in the rear-view mirror.”
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