Coronavirus: The Interaction Between a Pandemic and Insurance Coverage

Each day bringsfurther grim news of the spread of coronavirus in China and elsewhere; todaymentions of the virus have moved well beyond being the subject of internetjokes about Mexican beer now that Chinese deaths alone from the virus are around2,200. Arguments will doubtless rage for a long time on whether the Chinesewere too slow initially in dealing with the problem, however, that doesn’t helpthose suffering already from the effects, whether they are bereaved families orbusinesses suffering a loss of revenue and, as things stand today, the impactof the virus is spreading at a seemingly unstoppable rate. Last week the Mobile Congress World (MWC) inBarcelona was cancelled after several high-profile exhibitors pulled out – inthe past the event has attracted up to 100,000 people and this cancellationwill be a blow to many. However, it isn’t just conferences that have beenaffected, more recently rumours and facts have emerged about significant impactsto markets and manufacturing supply chains, from products as diverse as cars, oiland mobile telephones.

TheRole of Insurance

Other than thevirus itself, a common thread through all these stories could be insurance. Indeed,many businesses that rely on global supply chains will be checking their insurancepolicies for cover that insures a loss of production arising from supply chainproblems; meanwhile event organisers, tourists and business travellers will alsobe checking their polices for cover, if an event is compromised by the virus. Mostlarge businesses with a global reach should have cover in place for supplychain difficulties, but for many smaller firms that haven’t considered the needfor such cover before, evidence of any cover may be buried in the policy smallprintthat insurers are so famous for.

Some businessesmay be lucky enough to have purchased specific cover to include losses causedby pandemics. For those that have not, the business interruption element of theirproperty insurance policy is the first place to look to for supply chain coverage;this normally insures a business for revenue loss following physical damage toa firm’s own assets, although some policies offer extensions to cover suppliersand customers (i.e. events that affect a key supplier or customer – in thiscase a shutdown due to a health pandemic). The limits (amounts of insurance available)will almost certainly be lower than the amount available for own-asset damage;this is to limit the insurers’ exposure from many policies arising from thesame event. Even normal businessinterruption insurance is often inadequate to cover major losses – perhaps at akey production facility; however, what many companies are facing from coronavirusis complete shutdown; just this week Jaguar Land Rover announced that it hastwo weeks supply of some components – it is not alone. Therefore, the supplierand customer extensions may not offer adequate financial cover.

Exclusion Clauses

Another sectionof a policy to check is the exclusions, both those that apply to the suppliers’extension specifically (if provided) and those which apply to the whole policy;be warned, some insurers already have exclusions for pandemic alongside themore usual exclusions such as war.

For impacts onkey staff, business trips or other personnel issues, normal travel, personalaccident, key man or life insurance policies may offer some cover – theseshould be checked, though again with caution as pandemics or other similarglobal events that could lead to runaway losses may be excluded.

Pandemic Policies

Some specificpandemic insurance policies are available. For example, in 2019 Marsh launcheda product called PathogenRX,which provides global protection for US-based businesses affected by aninfectious disease outbreak; the insurance is provided by Munich Re and uses aspecific metric to trigger the cover. Also, most big events (such as the TokyoOlympics in July 2020) will probably buy specific cancellation insurance, whichagain could offer compensation should an epidemic result in cancellation;however buying now could be expensive.

From theinsurers’ perspective, the lesson for many businesses of all sizes from such‘unknown unknown’ events is that comprehensive business resilience too often isonly retrospectively assessed and possible mitigating insurance cover is eitherunknown, ignored or investigated too late. Risk transfer solutions that couldreduce the financial impact of coronavirus on business bottom lines areavailable; meanwhile ample good advice on business risk management can also befound on the internet, for example at the USCenters for Disease Control and Prevention.

About the Author

Mark Tetley has wide experience gained from senior positions across the London insurance market as both an underwriter and a broker , in a variety of sectors. He provides advice and assistance on a wide range of insurance and risk issues, including comprehensive nuclear liability and property insurance assistance, complex infrastructure project programme design and review, claims and policy reviews, assistance with project insurance design and implementation in developing countries, and many other aspects of risk mitigation.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy, infrastructure and natural resources sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and other technical experts.

This article remains thecopyright property of Prospect Law Ltd and Prospect Advisory Ltd and neitherthe article nor any part of it may be published or copied without the priorwritten permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended toconstitute legal or other professional advice and it should not be relied on inany way.

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Prospect is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, insurance and risk management specialists, and finance experts.

This article remains the copyright property of Prospect Law Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.