COVID-19 is likely to present unprecedented challenges for the insurance industry, across all lines of business, both domestic and international. Between the increasing number of confirmed infections worldwide, and the steps being taken in response by Governments and the private sector, COVID-19 has the potential to give rise to very significant losses, and associated legal disputes.
As a home for almost 800 licensed insurance companies and intermediaries, the Cayman Islands are the second largest domicile in the world for captive insurance companies, and Cayman holds the number one position worldwide for healthcare and Medical Malpractice Liability captives. US Workers' Compensation business makes up another large component of the Cayman Islands' captive sector.
The Cayman Islands separately hosts an active catastrophe bond and ILS sector, with many cat bonds issued through Cayman Islands special purpose vehicles.
The Cayman Islands are also home to a large number of insured entities, including hedge funds and private equity funds, publicly listed international holding companies, and professional service providers. Many of these entities purchase commercial insurance and reinsurance out of London, Bermuda, Hong Kong, Singapore, and the Cayman Islands, covering a wide range of risks and liabilities, including Directors' and Officers' liability, Management Liability, Professional Indemnity (Errors & Omissions), and Cyber liability.
Additionally, the Cayman Islands has a significant local tourism, construction, events, and real estate industry, with a large number of hotels, restaurants, and local development projects either recently completed, or actively underway.
Although it is far too early to try to place a value on total potential COVID-19 insured losses (whether related to the Cayman Islands or globally), it is worth noting that the SARS-epidemic in 2003 was the fourth-largest insurance loss event in Hong Kong's history, generating legal disputes and appeals all the way to Hong Kong's Court of Final Appeal (see, for example, New World Harbourview Hotel Co Ltd v. Ace Insurance Ltd  HKCFA 21, a business interruption insurance claim).
Trade credit insurers, life and healthcare insurers, travel and event insurers, and D&O insurers are likely to be put under particular pressure.
Reuters has recently reported that 'Insurers face a double whammy from coronavirus crisis', arising out of a sharp increase in claims activity, combined with significant investment losses.
The life insurance industry is likely to face particular challenges, given its exposure to interest-sensitive investments and investment losses, and the likelihood of increasing policy payments. Actuarial assumptions may also need to be re-visited, as WillisTowersWatson have discussed.
On the other hand, there may be an opportunity for new capital providers to enter the market, with new structures or products aimed at coronavirus-related cover, including, for example, catastrophe bonds aimed at pandemic losses. Although the World Bank's Pandemic Emergency catastrophe bonds are likely to be fully triggered, with associated investor losses, there is likely to be increasing interest in, and appetite for, such cat bond products, now that a trigger event such as COVID-19 has demonstrated their commercial value.
The D&O Diary has separately reported on the first COVID-19 securities Class Action Complaint filed in a US court against a cruise ship company, Norwegian Cruise Lines Ltd. (incorporated in Bermuda), suggesting that this may be the first of many D&O claims to come.
In practical terms, remote working and social distancing will present its own challenges for the insurance industry, in terms of notification and processing of claims, loss adjusting, claims handling and dispute resolution.
Legally, the general principles of English insurance contract law have been followed and applied in the Cayman Islands (see, for example, Jackson v. Cayman Insurance Company Ltd [1994-5] CILR 313, Zeller v. British Caymanian Insurance Company Ltd [2004–2005] CILR 283 (Grand Court), 464 (Court of Appeal) and  CILR 11 (Privy Council), and McLaughlin v. American Home Assurance Company [1994–1995] CILR N-18 and  CILR N-6).
Although there is no substitute for a careful review of each applicable insurance policy (by reference to its applicable governing law), the Association of British Insurers has published helpful guidance for consumers covering a range of insurance coverage topics, including Business Interruption Insurance, Home Insurance, Travel Insurance, Wedding Insurance, Income Protection Insurance, and Trade Credit Insurance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.