Coronavirus should trigger risk management protocols: ExpertsPosted On: Feb. 4, 2020 7:00 AM CST
The coronavirus outbreak that originated in Wuhan, China, and has spread to 23 other countries to-date, has potential business interruption implications for companies though the impact on the global insurance industry is likely to be limited, experts say.
On Jan. 30, the World Health Organization declared the coronavirus (2019-nCoV) outbreak a public health emergency of international concern and the United States raised its travel advisory, warning U.S. citizens not to travel to China.
As travel restrictions increase, the outbreak highlights the need for multinational companies to review their business continuity plans for a pandemic-type event and for employers to determine an appropriate workplace response, experts say.
Standard traditional commercial property or business interruption insurance policies are unlikely to respond to the outbreak, because there is no physical damage to insured property by a covered cause of loss, according to industry experts.
Under typical property policies in China, business interruption risks are unlikely to be triggered if they are not caused by damage to the insured property, Christie Lee, Hong Kong-based senior director, analytics for ratings agency A.M. Best Co. Inc. said in an email.
“Some large global commercial policies might have coverage extension to include business interruption from pandemics, however a sub-limit is usually applied,” Ms. Lee said in her written response.
“There are limitations to the traditional property and liability policies in the marketplace relative to viral outbreaks,” said Christopher Lang, global placement leader – U.S. and Canada for Marsh LLC, based in New York. “In response to that, there is available specialized coverage for pandemics.”
Such coverage is “typically on a very sophisticated, parametric trigger, but those are available,” Mr. Lang said. A location-based trigger is one example of how such coverage might be structured, he added.
Industries such as health care, hospitality, higher education and travel are examples of those interested in such pandemic coverages, Mr. Lang said.
In designing a sophisticated, non-physical-damage business interruption policy, “it’s possible to construct a trigger that could apply” to a wide range of businesses, even airlines, Mr. Lang said.
FM Global has received some notices from clients of business interruptions, but it’s too early to tell the impact, said Norwood, Massachusetts-based Louis Gritzo, vice president and manager of research at the Johnston, Rhode Island-based insurer.
An event like this drives home the need for companies to have contingency and business continuity plans for a wide range of scenarios, he said.
As part of those plans, policyholders should have a good understanding of the terms and conditions of their insurance policies. “If risk managers have any doubts about coverage, they should reach out to clarify,” Mr. Gritzo said.
From a risk management and an insurance perspective, this is about awareness, said Lance Ewing, executive vice president, global risk management & client services at Cotton Holdings Inc. in Katy, Texas, and a former president of the Risk & Insurance Management Society Inc. in New York.
For example, having a business travel accident insurance policy in place will allow a company to extract its healthy employees from places like China, he said. “It’s now time for the business travel accident policy to earn its premium keep,” Mr. Ewing said.
Business travel accident insurance is a “key arrow in the quiver” in response to virus-related situations, because it can assist risk managers with plans not just for repatriation, but medical attention, isolation and how to get people out of certain areas, he said.
Risk managers should also be checking with their workers compensation insurer and third-party administrator, he said. “If I assign my employee to be in China at this point and they’re a U.S. domiciled employee, then obviously we have an exposure. … Is your workers compensation (policy) ready to handle that?” Mr. Ewing said.
Potential general liability exposures could also arise, so risk managers should examine the exclusions in their company’s insurance policies to see what’s covered or not covered, and to engage with their insurance broker, he said.
“Assuming an epidemiological outcome similar to the 2002 SARS outbreak, I would expect the impacts to the global property/casualty, life/health and reinsurance sectors to be minimal,” said Dr. Robert Hartwig, clinical associate professor and director of the Risk and Uncertainty Management Center at the University of South Carolina in Columbia in an email.
“This scenario assumes that the outbreak will continue to expand for a limited period of time and then begin to subside,” he said in the email.
In general, a corporate decision to close a business will not trigger standard property or business interruption policies. “While it is always possible that a business could have negotiated a policy specifically for the purpose of covering a disease-triggered interruption, it’s unlikely that there are many such policies in the market,” Dr. Hartwig wrote.
While commercial general liability insurance policies in theory would cover a situation in which a business is found negligently liable for infecting individuals, with the low probability of a major outbreak in the U.S., “such litigation is not likely to be significant,” he wrote.
A Jan. 29 note from Oldwick, New Jersey-based A.M. Best Co. said that while the economic implications are hard to predict, they may have a “measurable impact.”
“China’s GDP contracted an estimated 1% in 2003 because of the SARS outbreak. SARS was also a coronavirus, and the outbreak coincided with the Chinese New Year. However, China’s impact on the world economy is more significant than it was in 2002-2003, so the potential slowdown might be a drag on worldwide growth,” the ratings agency said.
Reinsurers may face higher levels of risk than life/health insurers, especially as their risk profiles entail higher exposures to mortality and morbidity risks, A.M. Best said. Property/casualty insurers may suffer some losses due to business interruption, event cancellations, and travel-related covers, but these losses should be “manageable,” due to underwriting exclusions related to epidemics, Best said.
From a risk management perspective, having a business continuity plan in place for pandemic-type events is key, experts say.
On a global level, most risk managers have seen outbreaks like this before, most recently with the Ebola virus epidemic, and should have a response ready, Mr. Ewing said.
“Hopefully risk managers, along with brokers and agents already have this plan in place. It is time to maybe take it off the shelf, blow off the dust and apply those principles to this current coronavirus (outbreak),” he said.
If the framework is not already in place “now is the time to make sure that from the board of directors, all the way down to the front receptionist everybody is aware of what needs to be done,” Mr. Ewing said.
Companies should have a pandemic reaction plan just as they have an emergency response plan or business continuity plan, said Renata Elias, a vice president within Marsh Risk Consulting, based in Dallas, who encourages companies to “be proactive not reactive.”
Part of that includes establishing a regular working group to discuss pandemic planning and response, Ms. Elias said.
There has been an uptick in preparedness and response conversations with clients over the past couple of weeks, which has intensified over the past few days, Ms. Elias said.
Many of those asking are “those that have affected operations in China,” including business travelers, vendors and supply chains, Ms. Elias said.
Some companies are going to be caught off-guard, Mr. Gritzo said. “Companies need to have a contingency and business continuity plan that can be activated at a moment’s notice, that has been exercised and they know will be effective, and is maintained,” he said.
If personnel need to be away from an office, “do they have the materials they need to work away from the office? They also need to protect that business while they’re not at that business,” he said.
There are cascading effects on business operations, Mr. Gritzo said. “If you’re no longer able to be on-site to maintain the operations, are there safe shutdown procedures that are in place for business, manufacturing and warehousing processes? There needs to be a safe-stop mechanism as part of a business continuity plan,” he said.
Companies also should review how their key processes on-site can operate if employees are not on-site. “For those vital organs, those things that need to keep going, like computers,” companies need to make sure “they’re monitored, they’re alarmed, there’s some mechanism to ensure those key processes are going to perform safely.”
Employers should take steps to ease concerns and to protect employees and dependents, in parallel with public health advice from agencies such as the Centers for Disease Control and Prevention and the World Health Organization, said Mary Kay O’Neill, Seattle-based partner, health and benefits at Mercer LLC, a unit of Marsh & McLennan Cos. Inc.
Washing hands frequently, not touching your hands to your mouth and nose, and staying away from those who are ill are some practical prevention steps to be taken in the workplace, Ms. O’Neill said.
As coronavirus seems to be spread through respiratory issues, including sneezing and coughing, employees with symptoms should stay home and seek medical attention if they are sick, Mr. Ewing said.
Employers can also restrict non-critical business travel to mitigate risk, he said. For example, “if your supervisor was planning to send the entire department to a conference in Hong Kong,” then the employer should be asking itself “is this flight necessary? Is this trip something we really need to do?” he said.
While the coronavirus should be taken seriously, people also need to keep things in perspective, Dr. Hartwig said in his emailed response.
For example, according to the CDC, since 2010 the number of influenza deaths in the U.S. has run between 12,000 and 61,000 per year. As of Feb. 2., WHO reported 305 deaths from the coronavirus outbreak worldwide.
“From an historical perspective, it’s instructive to recall that fewer than 800 people worldwide died from SARS back in 2002/2003,” he said.
More insurance and risk management news on the coronavirus crisis here.