Will business insurance cover companies that don’t have business continuity plans or global emergency protocols in place?
A study by global consultancy firm, Mercer shows that more than half of companies (51%) around the world do not have a business continuity plan or protocols in place to combat a global emergency, such as the current COVID-19 outbreak. But will business insurance cover them?
Business continuity reflects the capability of a company to plan for and respond to incidents. Steyn McDowall, executive director of business and specialist insurance at Indwe Risk Services, says being pro-active around risk management strategies is not a luxury but a necessity. “A business continuity process or plan is activated when an event occurs that has the potential to interrupt standard operations. The COVID-19 virus has made this a reality for every organisation irrespective of size or industry sector,” he notes.
“It is too late for companies to try and buy insurance cover for the current outbreak. Some companies may have property damage and business interruption policies but very few of these policies would cover the effect of the business interruption caused by COVID-19,” says McDowall.
COVID-19 not only uninsured but uninsurable
Alicia Goosen, chief broking officer at Aon South Africa says insurers are likely to argue that the introduction of a virus does not constitute direct physical loss or damage to insured property nor is it an insured peril. “If the physical damage trigger is not met, the exclusion will also apply to most business interruption claims. There are, however, some select policies for certain industries that will address losses caused by infectious and contagious diseases,” she says.
This specific coverage can be referred to in clauses titled “loss of attraction,” “communicable diseases”; “special perils business interruption” or “infections and contagious diseases“. Goosen warns that such coverage is almost always subject to a low sub-limit – and is often aggregated as well. Although the extension grants cover for illness sustained by any person as a result of food or drink poisoning and any human infectious or contagious diseases, it also contains a host of specific virus exclusions (including but not limited to AIDS, SARS Corona Virus, Influenza A and any other virus).
McDowall says Indwe Risk Services is currently engaging with local and global insurers to explore potential pockets of cover within various forms of policy. “However, we are currently of the opinion that COVID-19 is not only uninsured but is uninsurable. This is a broad statement, but for insurers to price a risk they must be able to quantify the potential loss. With countries in Europe now in lockdown, it is clear the consequential losses are almost unquantifiable and certainly beyond the capacity of the insurance industry. The focus must be on risk management as opposed to insurance,” he explains.
Managing your leave in current times
Law firm, Webber Wentzel, says there are three different potential scenarios that will each have different leave consequences for you:
- An employer-imposed cautionary quarantine – Your employer can arrange for you to work from home. If you are unable to work from home, your employer could make it a special paid leave since it is their choice to send you home or your employer could take it out of your annual leave.
- Employee self-quarantine –You may choose to self-quarantine and if you are able to work from home, your employer would pay you in full. However, if you are not able to carry out your job function from home, this time may be deducted from your annual leave and if you have no annual leave available, this would then be unpaid leave.
- Government-imposed quarantine – This could be construed as a force majeure or a circumstance where your employer is unable to fulfil its obligations and is then able to implement a no work-no pay principle.
McDowall says that while black swan events are few and far between, a business continuity plan allows a worst-case scenario modelling. This should ensure that all impacts arising from an event are considered, regardless of the likelihood of an occurrence. “Whether or not enough South African companies have monitored developments around COVID-19 prior to President Ramaphosa’s announcement, will only be seen during the next few days and weeks ahead,” he concludes.
*This article was first published on Moneyweb.