The pandemic COVID-19 or the well known “Coronavirus” is gradually stretching its limbs throughout the world. COVID-19 has now spread to more than 180 countries with its epicentre in China. Coronavirus confirmed cases reported globally, adds up to 8,60,181 (1st April 2020) and is still on the rise. With the death toll of 42,345(1st April 2020) the insurance companies have to take it on the chin.
Public gatherings have been banned in several places. For instance, Mipim — the world’s largest property fair is postponed to the later part of the year. Similarly, the Mobile World Conference in Barcelona is cancelled altogether. From the IPL to the world’s premier basketball league to a 250-year-old parade and sprawling festivals, all national and international events are either cancelled or kept at hold indefinitely. Almost every business (likewise insurance) is impacted with corona outbreak and any business cannot rebound in a day.
Referring to the 2008 financial crisis when credit markets seized up, Mr Muri- Wood said, “The only thing we’ve ever had which was bigger than this was the banking crisis.”
Businesses, Corona and Insurance
Many businesses have insurance policies that are meant to kick in when disaster strikes. But few of those policies are likely to cover pandemic outbreaks. Business interruption insurance, the coverage typically availed by the companies, as part of their property policies, pays cash to make up for lost revenue when a business has to halt operations unexpectedly.
Despite the fact that most policies won’t pay out if people cancel their travel due to coronavirus; in February, Post Office Insurance saw a year on year rise in sales of policies of 168% and CoverForYou saw a 150% increase.
Queries on new policies have sharply spiked up to 60% since fresh cases of Covid19 reports.
“Globally, we have seen such cases that impact large populations there is an increased push from consumers to get themselves covered. We have seen the same happen here as well in the wave of fresh cases being detected”
Pankaj Verma, head marketing & underwriting operations, SBI General Insurance.
After the epidemics of SARS in 2003, Ebola in 2014 and Zika in 2015 — insurance companies realized that business-interruption claims could become unwise if they covered closures related to outbreaks of disease. Since then, insurers have taken steps to exclude epidemics from their policy.
Though epidemics are excluded from many business insurance policies, as recession threatens the global economy along with rising insolvencies, all sorts of companies, from airlines to retailers are coming under strain.
The insurers refused to comment, but Atradius said it is expected that corporate insolvencies will grow 2.4% globally in 2020, majorly resulting from the coronavirus outbreak.
The harsh reality
Perhaps, it’s too late to buy coverage for the current outbreak. Insurance companies do agree to take the brunt of the situation and pay the decontamination cost after the outbreak, but would tightly limit the amounts.
With unprecedented turmoil the industry created by the outbreak caused global airlines to cancel thousands of flights. Companies could choose a policy that would cover the deaths from an epidemic, when it passed a pre-estimated threshold, or when a government body — anywhere in the world — ordered a lockdown or travel ban. The policies are intended as custom contracts, so the company would choose according to their own risks.
Coface chief executive Xavier Durand mentioned that hotels and airlines will have to take the maximum brunt of the epidemic outbreak, while Euler Hermes saw coronavirus costing $320 billion of trade losses every quarter this year.
This indicates that companies will have to bear the losses themselves. It can be either directly or in the form of self-insurance funds (large companies often set aside some funds for emergencies).
LV, the insurance giant in the UK, have stopped selling travel insurance with immediate effect as a result of the coronavirus outbreak.
“We can’t insure a burning building,” Mr Ryan Christian Ryan of the risk advisory firm Marsh says.
The bottom line
The Coronavirus have adversely impacted the economy worldwide. From time to time, violent demonstrations slowed down the flood of travellers to a trickle and transactions grind to a halt.
McKinsey anticipates recession until the end of Q2 because of large-scale quarantines, travel restrictions, and social-distancing leading to a sharp fall in consumer and business spending. However, because of banks’ strong capitalization and macroprudential supervision, a full-scale banking crisis is averted.
Source: Tuhina Chattopadhyay (https://www.mantralabsglobal.com/)