Risk managers should consider the implications of a eurozone breakup when structuring their insurance programmes, according to speakers at an AIG event in London this week.
The threat of the eurozone crisis leading to a breakaway of one or more countries has important implications for the structure and integrity of insurance programmes, according to Philippe Gouraud, Head of Client Management, EMEA at AIG, who spoke at the 'Eurozone Under Threat' event.
As well as potentially giving rise to increased frequency of claims and fraud, a breakup of the eurozone would affect the payment of claims and premiums, especially under multinational insurance programmes. While the continuity of coverage would generally not be threatened, insurers could potentially avoid paying claims if the material underlying risk is deemed to have changed, delegates were told.
The big swings in inflation and currency valuations that would result from a eurozone exit could also affect the relative values of claims payments-depending on the policy terms and conditions related to currency and limits.
Risk managers and brokers want to know if insurance cover will remain in place and respond in the event of a eurozone break up, or to emergency measures like those seen earlier this year in Cyprus, said Kirsty Middleton, Deputy General Counsel at AIG in the EMEA region, who also spoke at the event.
There may be issues arising from how the master policy relates to the local policies, which would have implications for policy limits, claims and premium payments linked to changes in inflation and currencies. There are also considerations for difference in conditions/difference in limits cover, as well as captives and excess layers, depending on where the parent company is headquartered, explained Mr Gouraud.
The absence of fiscal unity and centralised supervision are big problems for the European currency union, and there is no exit mechanism for eurozone countries. However, an exit would most likely involve a managed process and amendments to existing treaties, explained Oliver Sutter, Partner at Norton Rose Fulbright.
An exit would result in the creation of a new currency and would have far reaching economic consequences such as high inflation, currency depreciation and recession, as well as an increase in insurance claims and fraud, said Ms Middleton. Risk managers should be vigilant as employees are under pressure to perform and hit targets in difficult economic times, she added.
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