Liz Booth investigates how the profession is coping with the impact of the health and economic crisis caused by the Covid-19 outbreak
As The Journal went to press, many insurance experts were trying to assess the impact of Covid-19 on the profession.
Financial data company for insurance, AM Best, is suggesting the virus has the potential to challenge European insurers on both the asset and liability sides of their balance sheets. However, it believes the biggest impact will come as a result of the economic fallout, as governments and markets react to the virus's rapid spread, rather than from direct coronavirus exposures.
"Despite considerable uncertainty about the ultimate cost to insurers in terms of claims, the insurance industry has long recognised the potential exposures presented by a pandemic," it says.
This view is backed by credit rating agency, DBRS Morningstar, which suggests: "While property and casualty (P&C) insurers could incur insurance underwriting losses directly due to the Covid-19 pandemic that has caused widespread disruption to businesses, there will not be any significant underwriting losses for the P&C industry overall. This is because the coronavirus is considered to be largely an economic event for now."
However, they are predicting certain lines such as events cancellation and travel insurance will experience an increase in claims, as trips and events get cancelled or more people become infected.
DBRS Morningstar points out that some organisations have a higher level of exposure to the coronavirus compared with others. This includes companies in the entertainment industry, large manufacturers and companies in the tourism and hospitality sector:
- Event cancellation insurance: Many events have been cancelled or postponed by organisations in an attempt to mitigate the spread of the virus, including Serie A football matches in Italy, Premier League and EFL football in the UK, Facebook's developers conference and the Six Nations rugby tournament.
- Workers compensation insurance: These types of claims may start to emerge for assembly line workers, call centres and hotel staff. â
- Travel insurance: DBRS Morningstar expects that a significant number of travel insurance claims will be reported because of coronavirus-related cancellations.
- Supply chain insurance: Companies that rely significantly on third-party providers for critical components or service may be able to make claims to recoup losses as a result of the interruption.
- Other policies that could trigger payouts include: business interruption, general liability, directors and officers, and pollution liability coverage.
As ever, much will depend on wordings. Simon Kilgour, insurance partner with law firm, CMS, says key considerations include:
- Direct trigger of loss? Insurance covers losses 'proximately caused' by an insured peril. In general terms, this means that a claim will be covered if the risk insured against is the direct or dominant trigger of the loss. Where coronavirus falls within the description of insured perils under a policy and the virus is the dominant cause of loss or injury suffered, it is likely that it will be covered subject to any relevant exclusions or policy conditions. Obvious examples of insurance cover where coronavirus could be the direct cause of loss are life and health policies.
- Exclusions: Policies may contain exclusions for pandemics, which could exclude losses arising from coronavirus. Travel cover may also exclude cancellation claims where the advice of an "appropriate authority" at the time travel was booked was against travel to that particular destination, region or country; or where circumstances could reasonably have been foreseen as giving rise to a claim at the time of booking.
- Property damage: Business interruption (BI) insurance typically requires physical loss or damage to the insured's property. Where a business sustains economic losses because many of its employees fall ill, claims under BI insurance will not usually be covered. If, however, it can be argued that the outbreak has caused property damage, the position may be different. Disease at the location, contamination and pollution may be covered under property policies but the terms may be restrictive, with sub-limits applied.
- Legal liability: Where individuals' infection by coronavirus can be traced to a particular place or activity, claims may be brought against businesses or individuals deemed responsible. These could, for example, include claims against employers, hospitals and medical staff, schools and universities, airlines, hotels and retail outlets for unreasonably exposing employees, patients, students or customers to the risk of contamination. Non-employers liability cover may exclude deliberate or reckless acts by the insured that could reasonably be expected to cause injury or damage. Whether an insured has acted recklessly may depend on whether it has complied with government guidance or requirements and whether actions taken are in line with similar businesses in its sector.
- Force majeure: Businesses will also be looking to the terms of their commercial contracts, including force majeure clauses, to determine whether they can recover uninsured losses or comply with their duty to mitigate losses claimed under available insurance cover.
THE LLOYD'S SOLUTION
The Lloyd's Market Association (LMA) has published policy language that will ensure customers' coverage continues beyond a specified renewal date if the Lloyd's market is inaccessible and the emergency trading protocol fails. The clause is intended to ensure that (re)insureds will not be left without cover if the developing Covid-19 situation makes normal renewal discussions untenable.
LMA5392 -- limited automatic extension -- prevention of access to Lloyd's of London
1. In the event that, seven or fewer calendar days before expiration of this contract of (re)insurance, all Lloyd's syndicates are prevented from entering Lloyd's of London,
One Lime Street, London, EC3M 7DQ:
1.1. By the Corporation of Lloyd's or-¦
1.2. Following the imposition of quarantine or restriction in movement of people by any national or international body or agency-¦
For more than one business day during the seven days before expiration of the contract of (re)insurance, this contract of (re)insurance shall, in consideration of a pro rata additional premium, be automatically extended at the existing terms and conditions for 14 days from the expiration of the contract of (re)insurance.
2. However, the automatic extension provided under paragraph 1:
2.1. Shall only apply if the (re)insured, their broker or (re)insurers, despite using best endeavours, are unable to implement the Lloyd's Emergency Trading Protocol;
2.2. Shall not increase or reinstate any applicable limit(s) of liability;
2.3. Shall only apply once, unless agreed otherwise in writing by (re)insurers;
2.4. Can be voided by mutual agreement between the (re)insured and (re)insurers.
GlobalData's 2019 UK Consumer Survey found that Spain, the US, France, Greece and Italy are the most popular destinations among consumers purchasing travel insurance in the UK.
Beatriz Benito, senior insurance analyst at GlobalData, says: "With coronavirus hitting all of the popular destinations, fears of contracting the virus mounting, and many finding that their travel is non-essential, consumers are turning to insurers to clarify their options."
Travel insurance will provide cover for destinations where government agencies have warned against travel.
Ms Benito adds: "In the US, travel insurance comparison sites have reported an uptick in sales of more expensive 'cancel for any reason' (CFAR) travel policies. TravelInsurance.com registered an increase of roughly 150% in CFAR policies sold during January and February 2020, compared to a year prior."
Heidi Lawson, a partner at law firm Cooley in Boston, says: "Without event cancellation coverage, most companies will hunt around for other possible sources of insurance. Political risk insurance, which many companies may already have due to international investments or overseas operations, may cover losses as a result of a government shutdown or curfews.
"With many political risk policies, this form of indemnity often necessitates a waiting period of 90 days or more prior to coverage activation. By the time the political risk policy comes into force, there may be no need for it anymore."
She adds that civil authority clauses in first-party policies can provide coverage for business income losses that arise when a civil authority prevents the policyholder from accessing their premises, which may happen when a civil authority blocks access to a property facing an outbreak. These coverages also typically have waiting periods (sometimes 72 hours) before coverage can be triggered. Notably, such coverages will often depend on whether there is a requirement of physical loss, which may not be present in an outbreak.
Directors and officers (D&O) insurance coverage may apply if investors or customers eventually sue a company and its directors and officers as a result of losses incurred from breaching a quarantine or failing to take timely or appropriate action to mitigate the impact of a disease, resulting in additional sickness, a company shutdown and, eventually, lost revenues as a result. However, one important thing to note is that many D&O policies have a broad bodily injury exclusion. As a result, coverage under a D&O policy depends on the precise policy wording and underlying facts.
Ms Lawson says another potential source of insurance might be under a company's employment practice liability insurance, which can sometimes assist companies involved in actions by employees because of layoff or furlough claims due to government or company shutdowns.
Blair Adams, a partner at law firm Winckworth Sherwood, says: "The prediction that up to a fifth of UK workers could be off sick at the peak of the coronavirus outbreak means that businesses [including insurance] and other organisations are going to be stretched in a variety of ways, including in terms of workforce planning. Technology has a big part to play for businesses that can impose remote working or foreign travel bans, but for many organisations, remote working is impossible or only marginally significant.
"Businesses could potentially have to deal with mass sickness absences, potentially unsafe workplaces and employees who need time off because of school closures or who are unwilling to travel to work for fear of infection. These novel circumstances will bring to the fore legal issues that do not arise in business-as-usual operations."
Tina Chander, partner and head of the employment team at law firm Wright Hassall, warns: "Employers must also take steps to ensure that no members of staff, customers or suppliers are treated differently because of their race or ethnicity. It may be appropriate to remind staff that jokes and banter, even if lighthearted, may easily slip over the line to become unlawful harassment and/or discrimination, for which an employer may be liable.
"Employers can avoid liability if they can show they took 'all reasonable steps' to prevent employees behaving in such a manner, which includes having well-publicised diversity and harassment policies and training all staff on the issue. Managers must also be trained about their responsibility to identify and prevent discriminatory behaviour."