Coronavirus - financial protection options
18 March 2020
25 March 2020
Policy and Public Affairs
How COVID-19 will impact insurance products and how to identify the gaps in policy wordings.
Coronavirus (COVID-19) is a new strain of coronavirus first identified in Wuhan City, China in December 2019. The symptoms of coronavirus are:
- a cough
- a high temperature
- shortness of breath
The NHS have recommended that anyone who has been to a high-risk country or area, or been in close contact with someone with coronavirus, should call the 111 coronavirus service for medical advice and to self-isolate for 14 days. The World Health Organization (WHO) have also provided basic precautionary measures including:
- wash hands frequently
- maintain social distancing
- avoid touching eyes, nose and mouth
- practice respiratory hygiene
- seek medical care if experiencing fever, cough and difficulty breathing
At present the UK is currently in the ‘delay’ phase, the second phase of the government's four-part plan, attempting to slow down the spread of the virus. However firms and organisations are recommended to be familiar with their own business continuity plans.
Similarly, the Financial Conduct Authority (FCA) recently released a statement, highlighting that they expect all firms to have contingency plans in place to deal with major events. They are also discussing with firms and trade associations any particular issues they may have to help towards resolving them. Firms may have to use backup sites or perform activities from home, but these contingency steps are deemed acceptable as long as reasonable steps are still made to meet regulatory obligations.
While the UK plans what to do next, brokers and insurers should be examining the products they are selling and how relevant they are in the current climate. With the world about to reach unprecedented levels of disruption in a generation, insurance products will still need to be fit for purpose, clearly identifying when cover applies and when it doesn’t:
Insurance brokers should be looking at the business continuity plans of their clients and identify if there are gaps for non-damage losses. Most policyholders will be looking to see if they have suffered a direct physical loss. Standard business insurance policies are designed and priced to cover standard risks and are therefore unlikely to provide cover for the effects of global pandemics like Covid-19.
However, the Association of British Insurers (ABI) have highlighted the following: “Standard business interruption cover – the type the majority of businesses purchase – does not include forced closure by authorities as it is intended to respond to physical damage at the property which results in the business being unable to continue to trade.
A small minority of typically larger firms might have purchased an extension to their cover for closure due to any infectious disease. In this instance an enforced closure could help them make the claim, but this will depend on the precise nature of the cover they have purchased so they should check with their insurer or broker to see if they are covered.”
The Foreign and Commonwealth Office (FCO) have warned against non-essential global travel for 30 days. There are also an increasing number of countries closing their borders each day. Therefore it is important to be using the most-up-date information about where and what will remain valid. The FCO’s decision will therefore allow policyholders with cancellation or travel disruption cover in place to claim for cancelled trips that were already booked and cannot now go ahead. Some travel operators are able to rearrange or transfer travel plans, however if a cancellation occurs it is important for insurers to find fair outcomes for their customers.
Cancelled events across the retail and hospitality sectors are increasing rapidly. These events could be covered under policies that cover the cancellation, abandonment, curtailment, postponement or relocation of the insured event. However, the actual wording needs to be clarified whether it was a voluntary cancellation as some events have an exclusion for communicable disease.
As many people are being advised to self-isolate to protect others or themselves, this has prompted an increase in enquiries about income protection for illness. This type of income protection insurance deals with disability (or 'incapacity') due to illness or injury which is severe enough to cause inability to work, resulting in a loss of income, and lasts longer than the initial waiting period. The definition of 'incapacity' in the policy decides how severe the disability needs to be. Waiting periods can be less than four weeks or even zero, but most are one month or longer. This means that people self isolating to protect others are unlikely to be covered, unless they have severe symptoms and those continue beyond the waiting period. The position is less clear for people with medical conditions not in themselves preventing work, but because of which they are now receiving medical advice to self-isolate for at least 12 weeks for their own protection. This will very much depend on the terms and conditions of the particular policy and especially how 'incapacity' is defined.
To help clarify how the insurance sector can provide support, the ABI have provided reassurance that: “…its member travel insurers are offering enhanced help and support to all their customers who may be understandably concerned about travelling overseas due to the Coronavirus.
The commitments include considering all valid claims for cancellation and travel disruption where compensation is not available elsewhere as quickly as possible, and, if necessary, ensuring that extra resources are available to offer prompt help and advice to customers.”
The effects of coronavirus will have a wide-ranging impact on businesses and individuals alike. Therefore, it is important to check that customers are covered properly during this time of great uncertainty. The ABI commented: “It may be possible to buy consequential business interruption cover for notifiable diseases as an extension to a business insurance policy, subject to any policy terms and conditions. Standard business insurance policies are designed and priced to cover standard risks, not those that are very unlikely, such as the effects of Covid-19. More generally, all UK insurers are capitalised under Solvency II to withstand a wide range of severe events, including pandemics.”
Travel and business interruption policy wordings are going to be crucial over the next year in terms of how people are currently protected and how they’ll be covered in the near future. There will understandably be a focus on existing customers who may be caught up in the pandemic. There are also ongoing announcements of ways in which the financial sector can help, such as UK banks offering mortgage holidays.
The UK government have also provided advice on the following:
- statutory sick pay relief package for SMEs
- a 12-month business rates holiday for all retail, hospitality and leisure businesses in England
- small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief
- grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000
- the Coronavirus Business Interruption Loan Scheme to support long-term viable businesses who may need to respond to cash-flow pressures by seeking additional finance
- the HMRC Time To Pay Scheme to help with tax
This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.