The Worldwide Pandemic
Firstly, it is important to say that the word “pandemic” does not denote the characteristics or seriousness of a virus or disease. Rather, it is a word that distinguishes an “epidemic”, being a disease that affects one or a few nations from a disease that affects all (Pan) nations, i.e. all nations in the world; hence “pandemic”.
However, the seriousness of the current pandemic is not measured in medical and health terms alone. It is also likely to have a severe effect on the entire global economy because any interruption to ordinary business dealings is likely to cause the business to suffer. In simple terms, additional costs and reduced revenue.
Is there Cover in most policies?
Mostly, No there is not. It will be natural for businesses that find themselves in financial trouble to turn to their Business Interruption insurance policies and expect cover for the losses. In fact only some 50% of all businesses buy BI cover, because they do not perceive the need for it; until a situation like this strikes. Even if you do have the policy the cover for Coronavirus will probably be absent.
Regrettably, our research to date indicates that very few commercial Business Interruption (BI) insurance policies do extend to indemnify business policyholders for losses arising from the Coronavirus pandemic. Those that do will have limiting conditions that may require expert help to understand how they apply in practice.
This is not because the insurance industry is deliberately avoiding the issue. It is because the circumstances of a relatively unknown virus spreading so unexpectedly and rapidly across the world has never before been a foreseeable risk with such wide-reaching economic consequences that would create a demand for insurance protection of the ordinary business.
Why is there no insurance protection?
Until now it has been generally assumed by the “authorities”, the insuring public and the insurance industry, that risks arising from a disease or contamination which resulted in “lockdown” and its consequences, was a risk that would primarily affect only one entity or property at a time; for example a public building, hotel or cruise ship. Consequently, insurance for a pandemic on the scale we have now experienced was not generally thought to be necessary; the risk of pandemic being thought improbable. Consequently there was no demand to create a market for the cover.
Nevertheless, some businesses were far-sighted enough to foresee a possibility of Business Interruption loss arising from a need to shut down for a variety of reasons and some insurers were able and willing to offer some cover. A few years ago a very few insurers were also far-sighted enough to foresee the need for this kind of Business Interruption protection and offered it to a greater or lesser extent in their ordinary policies. It generally costs more than the ordinary BI policy, and many businesses did not take it up on grounds of cost; or believing it unnecessary.
It is therefore fair to say that some cover exists in some policies for the losses now being sustained; but it is rare. It will be a matter of examining the facts in every circumstance and perhaps some negotiation with the insurer to establish whether any given policy provides any protection in the current situation.
An Example of Cover
If cover exists at all, it would be written in a clause within the policy (or added as an endorsement to the policy – usually attached to the policy’s Schedule,) which may resemble the following example.
The Company shall indemnify the Insured in respect of Damage (as defined) in this Section caused by:
- Murder, Suicide or Disease or
- any human infectious or human contagious disease (excluding Acquired Immune Deficiency Syndrome [AIDS] or any AIDS-related condition) an outbreak of which the local authority has stipulated shall be notified to them and which is manifested by any person while in the (premises insured) or within a 25-mile radius thereof and resulting in interruption of or interference with the business during the Indemnity Period
NB There is no single insurance industry-standard coverage clause for this type of risk. There are infinite variations on the theme of cover.
What Next? What Can I do?
- Follow government
The government is announcing measures to help businesses stay afloat. Those measures will become more apparent as time goes on but insurance protection is not yet amongst them.
- Seek Advice
If you have any Business Interruption insurance at all you should take advice from your broker as to what cover may be available. If you do not have a broker you can ask us.
- Industry Discussions- development
There are discussions taking place in the industry and government which may result in other solutions, insured or otherwise, but they are unlikely to become available for weeks or perhaps months, ahead.
- Cut Costs and prepare for no surprises
In the meantime it is important to cut costs where you can and warn your suppliers, and creditors, in writing that you may not be able to meet your commitments. This is intended to level the playing field a bit; if they know, they can prepare. If they do not know they may make things worse for you by sending in demands and debt collectors. Have a policy of “no surprises” and total openness and honesty in your dealings.
- Plan for renewal
Prudent business owners will invite experienced insurance brokers to assist them in exploring the market for future insurance protection as it becomes available. It will not be insurance suitable for buying online. It requires a skilled understanding and insurance knowledge to arrange an adequate cover.
- Anticipate further pandemics – or “lock down from terrorism or other “rare” events.
The outcome of the present Coronavirus pandemic has undoubtedly created a new “peril” for the economy; i.e. the risk of shutting down the business or creation of no-go zones preventing access to the business in an attempt to contain the spread of the disease. Furthermore, the risks arising from government instruction to remain at home could have devastating effects on the ability of some businesses and services to keep running at all.
As things develop in this unprecedented situation we will keep our followers informed. As for the future of insurance for a pandemic, there will be an attempt by some brokers and insurers to meet the future demand.
Meanwhile, if you have a particular question, problem or need please do call us on 020 3972 6440
Want to know more about how Business interruption works?
Want a further steer on your situation and what to do next?
Call us on 020 3972 6440.