The premiums of the many pay the losses of the few
Many of my clients will know that I previously trained and practised as a sick children’s and general nurse and as a midwife. This background and running an insurance broker business come together in the work I do with clients across the healthcare sector. I did not expect that it would also come together with a highly infectious virus which is having an enormous impact on our working and social lives, businesses, families and friends. It is no surprise that I have had many clients getting in touch to ask about what protection they have for their business from the effects of the CORVID-19 pandemic.
For commercial insurance, the main impact is felt with interruption to the business. Businesses are being affected in a number of ways; difficulty in getting supplies, lost orders from customers because they have closed down or reduced operations; and perhaps having to close your own premises due to infected staff. And then there is the worry that the government might tell you to shutdown. Here are the typical questions I am being asked and the answers:
Q1
Am I covered if the government instruct businesses to close for a period, as has happened in Italy for example?
A1
No. A business interruption insurance policy primarily covers loss of revenue or increased costs incurred by a business resulting from physical loss or damage (i.e. a fire, flood or storm) at your business premises and not forced closure by the authorities for any other reason.
A very common extension is for compulsory closure of the business and typically covers closure resulting from murder or suicide, defective sanitation, vermin & pests, and notifiable diseases. The inclusion of notifiable diseases may offer some protection if there is infection at your premises depending on your specific policy wording. Please see Q2 below.
There are other extensions to the main cover which may be relevant, and which are covered in the questions below.
Q2
I have been instructed to close my premises for cleaning, decontamination and sanitisation as a result of one or more of my staff being infected with Coronavirus (COVID-19) can I claim under the policy?
A2
The level of cover provided by the extension for compulsory closure of your business premises will be dependent on your policy wording and specifically any extension for Notifiable Diseases.
The key difference is that some policies name the diseases that will trigger this cover (and COVID-19 is unlikely to be one of them) and others are more general in referring to a ‘Notifiable Disease’. The UK government passed legislation on March 4th to add COVID-19 to the list of Notifiable Diseases so in the latter case cover may well operate. If you don’t know how your policy works in this respect, please give me a call on 01233 512548
Q3
A supplier or customer of mine has had to shut down production and/ or operation due to Coronavirus (COVID-19) and it’s impacting my business. Am I covered by my Business Interruption insurance?
A3
No. Most policies do provide cover for business interruption at a supplier or customers premises, but this cover applies for physical loss or damage (fire, storm, flood etc.) at the supplier/customer premises and not disease.
This means there would be no cover in these circumstances.
Q4
The premises next door to my business has been closed due to a Coronavirus (COVID-19) outbreak within their premises. If I decide to shut my premises as well will I be covered under the policy?
A4
Cover for Business Interruption will not operate should you choose to close.
Q5
Am I covered if customers cannot get access to my business because a neighbouring business has been closed for cleaning following coronavirus infection to a member of staff?
A5
No. Business Interruption policies typically have an extension to the cover for Denial of Access, but this is the same as the position with customers and suppliers in that the cover operates following physical loss or damage to the neighbouring premises.
In summary, the news is not great, and many businesses are going to suffer financial loss from this outbreak. The reality of insurance is that not all risks can be insured and works in the main to protect against commonly faced risks that affect relatively few at any one time. The availability of insurance is determined by Insurers ability to quantify the potential liabilities and then set premiums that are affordable.
The premiums required to cover the liabilities from a global outbreak of disease such as we are experiencing make insurance unviable. As the title says one of the key tenets of insurance is “the premiums of the many will pay for the losses of the few” and when we are faced with the losses of the many we have to look to ourselves, each other and the government to do all we can to mitigate and minimise the damage.
