Coronavirus: Implications for the Insurance Industry

Published 26 February 2020

The coronavirus disease (now known as COVID-19) was first reported in Hubei Province, China on 31 December 2019. On 30 January 2020, the World Health Organisation declared a public health emergency of international concern and is reporting cases around 50,000 globally, with deaths around 1500. Being zoonotic, the virus can be transferred between animals and humans and primary transfer is thought to be close contact or coughing and sneezing. At the time of writing, the Foreign and Commonwealth Office is advising against all travel to Hubei Province, and against all but essential travel to the rest of mainland China, but is not advising against travel to any other country/territory as a result of coronavirus risks.

Beyond public health, three of the most significant consequences to these developments are cancellations in travel and events and loss of revenue. But how much of this will fall to be dealt with by insurers? Policy coverage will of course depend on individual circumstances and the specific wordings of the policies but some general themes are emerging which may help the industry understand where it stands and how best to deal with claims and underwriting going forward.

Travel Claims

In light of the FCO advice, a clear distinction needs to be drawn between travel to destinations where there is advice not to travel and a more general reluctance to travel due to the situation as a whole. While the latter concerns are fully understandable, cancelling a holiday outside China is unlikely to be covered. Where there is advice not to travel, a key factor is the date on which the warning against travel was made. In reviewing any policy, care should be taken to consider any extensions which may cover epidemics.

Event Cancellation

Beyond travel, the coronavirus has resulted in a number of cultural, music and sporting events being cancelled. Event cancellation and disruption insurance will need to be considered in light of the FCO travel restrictions, any closure of event spaces and the need for the cancellation. Careful review of exclusions or extensions relating to infectious diseases will again be necessary.

Those businesses considering buying cover now are likely to see the coronavirus specifically excluded but that doesn’t mean that an infectious diseases extension is not valuable against other diseases and they should have detailed discussions to ensure that appropriate cover is obtained and well understood.

Business Interruption 

There may also be a loss of profit suffered by both global and local business. In the hospitality industry, the absence of business and leisure travellers will affect travel providers (such as airlines and cruise ships), accommodation providers and those businesses that support travel and tourism (such as transfer providers and restaurants).

In addition, there may be significant disruption to supply chains, whether due to the absence of staff through evacuation, denial of access, sickness or due to failure to deliver materials or parts essential to production.

Coverage for both business interruption and contingent business interruption is most commonly consequent on there being damage to property (in contingent BI, the property belonging to someone other than the insured, such as the supplier), for example a fire at a factory, which is clearly not the case here. Beyond any queries over the indemnifying provision, there may also be pollution or contamination exclusions, which may include viruses, bacteria or diseases.

Policyholders may however have more specialised supply chain insurance or extensions which may meet the needs of this situation, providing contingent business interruption cover triggered by non-physical damage events such as infectious diseases or denial of access, although post Ebola, exclusions are more commonplace.

This is only the tip of the iceberg. The WHO is warning of cybercriminals cashing in on topical news stories like this to send emails asking for sensitive information or including malware. Employers, directors and officers and the hospitality industry may also face liability claims for exposing others to the coronavirus. We also need to consider the extent to which there may be other reasons for any financial loss, such as political instability and Chinese New Year.

For any further queries in relation to the coronavirus, please contact: