Miller is experiencing a surge in demand for epidemic insurance as the ongoing coronavirus outbreak creates large uninsured business interruption losses across almost all sectors.

Covid-19 has now spread to almost 200 countries with an estimated three billion people in lockdown, around a third of the world’s population. Measures to stop the spread of coronavirus, including travel bans and social distancing, are having a devastating effect on businesses and their supply chains. UNCTAD predicts the pandemic could cost the world’s economy at least USD2trn in 2020, pushing the global economy into recession.

Faced with unprecedented disruption, many companies are turning to their insurance cover, including property damage and business interruption policies. A small number of organisations that had the foresight to purchase specialist standalone epidemic policies will have some recourse, but for the vast majority of businesses, Covid-19 will most likely be an uninsured event.

“Every policy wording and insurer’s response is likely to be different, so customers will need to read their insurance contracts and take advice from their broker. However, the majority of traditional property policies will not respond to Covid-19 business interruption related losses.” 

Coverage gap 

Standard property policies pay a claim for business interruption losses following physical damage, and would typically exclude communicable diseases. Some property policies may include non-damage cover – such as denial of access extensions - but many would specifically exclude disease. Bespoke wordings can provide cover within a property policy for communicable diseases, such as the notifiable disease extension, but these usually limit cover to named diseases.

Insurers are under pressure to be part of the solution for coronavirus business interruption. For example, members of US Congress have requested that insurers retroactively cover policyholders’ coronavirus-related financial losses under business interruption policies, although this has been roundly rejected by insurance trade bodies. Several US policyholders have also filed suits, requesting courts determine that Covid-19 losses are covered under business insurance. 

“The situation changes almost daily and it remains to be seen whether courts will change the interpretation of the definition of damage under a property policy. However, it was not the intention of underwriters to cover diseases such as Covid-19 under traditional policies and a premium has not been allocated,” says Taylor. 

The interpretation of business interruption cover is turning into a critical issue for the insurance industry, according to Jason Sidgwick, Miller’s energy and mining claims specialist. While insurers intended to exclude communicable diseases from property coverages, some ‘All Risks’ wordings may be wide enough to provide coverage. 

“This will be a hotly debated subject that will run for some time yet. If governments and courts do support such claims, it would have huge ramifications for the whole market, creating a massive exposure for insurers”, he said.

Move to exclude

Unsurprisingly, insurers are taking measures to further restrict cover for communicable diseases when property policies renew, adding specific exclusions for Covid-19 as well as broader epidemics and pandemics.

“I would expect the property insurance market will now move to exclude epidemic and pandemic cover, in much the same way it excluded terrorism exposures following 9/11 and the IRA mainland UK bombing campaign in the 90’s. As was the case then, we are likely to see a shift towards purchase of standalone epidemic insurance in the future,” says Taylor.

Dedicated epidemic cover

As a known event, businesses will not be able to purchase insurance cover for the current Covid-19 outbreak. However, many organisations are asking their agents and brokers about protection for future disease events, such as another Ebola or Coronavirus outbreak.

“Many businesses are working hard to deal with the current crisis, but they are also looking to the future and realising that traditional property and business interruption policies would not respond to another pandemic crisis. We are now seeing a huge amount of interest in bespoke epidemic  insurance from our clients, who have been blindsided by the severe economic impacts of Covid-19 and recognise the need to get an insurance solution in place for future events,” explains Richard Coyle, Alternative Risk specialist at Miller.

Efforts to develop dedicated epidemic risk insurance solutions have been ramped up following the emergence of Ebola in 2014 and has continually evolved in response to subsequent disease outbreaks, such as the Zika virus in 2016. Unlike the traditional property insurance market, insurers in this niche area have invested in specialist in-house teams and work with epidemiologists and virologists to provide tailored business interruption cover that responds to new communicable disease outbreaks.

Specialist epidemic risk insurance covers loss of gross profit due to an epidemic or pandemic outbreak. Limits are material (as high as USD100m) and can include access to specialised epidemic risk management experts to prepare for and mitigate the risk of an outbreak. The policy covers unknown and emerging viral diseases, as well as epidemic outbreaks of known disease types such as Ebola and Coronaviruses. Coverage cannot be purchased retrospectively for specific disease outbreaks which have already occurred.  The policy is triggered by the World Health Organisation’s Disease Outbreak News (DON) bulletin and insurance pay-outs are linked to the number of fatalities occurring within a pre-defined geographical area.

The next outbreak

Communicable disease outbreaks are on the rise, fuelled by increased levels of urbanisation and global travel, as well as the transmission of viruses from animals to humans, known as spillover. According to the Global Virome Project, threats posed by global epidemics and pandemics are greater now than at any other point in human history – spillover events are now two to three times more frequent than 40 years ago.

Despite communicable disease outbreaks like Ebola and SARS, most organisations have opted not to purchase epidemic risks cover.

“Coronavirus is such an unexpected and unusual event, many businesses did not think of buying epidemic risk insurance, nor did they seek to extend property insurance to cover communicable diseases. Most companies just did not foresee this event or appreciate the impact a pandemic or epidemic could have on their operations and balance sheets,” explains Sidgwick.

Covid-19 is a clear warning of the risk of communicable diseases and is likely to be the catalyst for greater take-up of standalone epidemic risk covers.

“The devastating impact of Covid-19 demonstrates the urgent need for an epidemic risk insurance solution to protect company balance sheets in times of crisis. The frequency and severity of disease outbreaks is on the rise and as such we forecast a corresponding rise in the demand for this type of insurance,” says Coyle.