The Novel Coronavirus (2019-nCoV) outbreak, now officially declared a global emergency by the World Health Organisation, has claimed at least 490 lives with almost 29,000 cases in 24 countries, including three confirmed cases in the UK to date. Unsurprisingly, the insurance market has seen a significant rise in enquiries. In this article, we explore the impact of such an outbreak on businesses and the differences between traditional and epidemic business interruption coverage.

The outbreak of the most recent strand of Coronavirus has received global media coverage. With the existing number of confirmed cases approaching 29,000*, the perception of risk has led to widespread global disruption to supply chains and business operations, and a sharp increase in insurance enquiries.

Industries most exposed to losses include the hotels and leisure sector, tourism, airports, airlines, cruises, public transport, hospitals, education, mining and manufacturing. Reduced footfall and customer refunds as a result of cancelled bookings have severe financial consequences, with demonstrated knock on impact on share price. From a supply chain perspective, if manufacturing hubs are closed or ports are on lockdown, this also poses a major problem for business.

The financial fallout of the Coronavirus is not yet clear, however the impact will likely be significant. Russia has closed its 2,600 mile border with China, following Hong Kong announcing plans to slash cross border travel, and notable commercial disruptions within the country to date include:

  • British Airways suspending all flights to mainland China 
  • Starbucks closing 2,000 branches 
  • Fast food restaurants including McDonalds, KFC and Pizza Hut have closed stores
  • Major tourist attractions including Shanghai Disneyland have closed
  • Major hotels chains including InterContinental have closed 
  • Ikea has temporarily closed all 30 of its stores until further notice.

Insurance market response

Traditional insurance policies typically exclude losses arising from virus specific outbreaks. Coverage gaps highlighted following previous infectious disease outbreaks such as SARS (2003), Swine Flu (2009), Ebola (2014) and Zika (2016) prompted a number of insurers to develop standalone solutions. As a result, there now exist several non-physical damage business interruption coverages that include communicable disease perils. Needless to say, disease outbreaks already in existence, such as 2019-nCoV, are not in scope. 

Example coverage aimed at the Hospitality sector  

  • Business interruption - loss of income due to cancelled bookings and other earning services, whether due to lack of staff, quarantine requirements or guess cancellations.
  • Extra expenses - quarantine and cleaning procedures, staffing replacements, relocation of customers.
  • Limits – as coverage is for business interruption, the limit should reflect the expected income during the time that a disease outbreak could affect the business. On average, this is three months but each disease has its own characteristics and the effect on business is often dependent on the media coverage and public perception of risk.
  • Pricing – coverage options are bespoke with flexible income drop and disease outbreak parameters to meet budgets.

Limitations of disease outbreak extensions within traditional PDBI policies

When a disease becomes notifiable from a claims perspective can vary from policy to policy. Just because there have been incidents of the disease being present, does not mean the policy is triggered, even though a loss of income may have already been suffered. Insurers might specify the need for the World Health Organisation or a recognised authority within the country to declare an outbreak. For example, the hotels in Wuhan will have suffered a reduction in occupancy rates as soon as the first cases were reported in the media, but the World Health Organisation only declared it a global emergency on 30th January. 

For traditional property and business interruption (PDBI) policies with disease outbreak extensions, all criteria has to be satisfied – for example the disease has to be within the immediate vicinity and some policies only respond to named diseases. These claims are generally are difficult to prove. 

Standalone infectious disease policies may offer broader coverage. A policy will typically trigger following the occurrence of a qualifying number of confirmed fatalities caused by a single covered disease within the country, or neighbouring countries, in which the insured location is situated and within a 12-week period.

Our advice is to look carefully at existing policy wordings, check that they have the disease trigger and meet the radius and other policy requirements. Insureds also have to prove that loss of income is as a direct result of the disease outbreak. If these conditions are satisfied, businesses can expect to be reimbursed for a period of up to three months following the notification.

*Source: WHO situation report, Friday 7 February

 For more information, get in touch with Richard Coyle or Sue Taylor.

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