Business owners all over the world are seeking advice on insurance to see if any of the cover they presently have will cover them against losses incurred because of C19.
Business Interruption Insurance (BII) covers a company for loss of income during periods when it is not possible to carry out business as usual due to an unexpected occurrence. Normal international insurance standards aim to put the business back in or near to the same trading position it was in before the event occurred.
BII is often included in or offered as an optional extra to various corporate packages which combine a number of different, pre-agreed options under one policy umbrella. As well as this, it can be an optional extra to Buildings and Contents (B&C) insurance policies. However, these are usually run of the mill type offerings and you will not even have to scour the small print to know that something like C19 will not be covered.
It is fair to say that most BII policies will cover business interruption as a result of property damage caused by fire, storm or flooding. Some others will also include employees not being able to access the company’s property and/or damage being caused at the premises of a customer or supplier.
Specialist policies, which are sold separately, are available to insure a company’s computers against viruses, hackers and other cyber risks.
However, in this case we are talking about the C19 virus and not something that hits our computers from time to time. Needless to say, almost all non-specialist BII policies will not cover C19.
When making a claim for BII, the insurance will usually recompense the company for such things as any (pre-tax) shortfall in profits and/or any increased costs of running the business as a result of the event.
If a company has taken out BII, the standard policy wording under this section is likely to include a Material Damage Proviso. What this means is that for the cover to be applicable there must be some sort of physical damage to the insured premises which causes business interruption.
It is important to check individual policies because some include ‘Special Extensions’ or ‘Endorsements’ which for example include losses caused by notifiable human diseases. If a policy has this extension you may find some cover provision to assist you in the event of interruption caused by the C19 virus. However, before you get too excited, it must be pointed out that some of these policies further restrict such cover to certain known, specified diseases and that the disease must have been present at the premises.
Unfortunately, of the numerous policies we have reviewed so far, only a limited number have included business interruption cover that would extend to losses arising from C19 and there are none offered as Standard Practice in Thailand by any of the major Thai insurance companies.
Like all insurance products, the small print of business interruption policies carries a list of exclusions — and infectious diseases are typically one of them. The insurance industry started to model the impact of epidemics following the SARS outbreak in the early 2000s.
As you would expect, many people are querying this – especially in America where more than a few lawyers are arguing that the virus has caused damage to property in that it cannot be maintained and that a Government ordered lockdown overrides everything as it is having to comply with emergency federal law rather than react to the virus itself.
Some companies that are insured on a global basis by an insurance company emanating out of somewhere like London or New York may also be able to claim under the ‘Non-damage denial of access clause’. This insures against situations where the policyholder’s staff cannot access their factory or office for reasons other than physical damage, for example this could include where a government order or decree prevents such access. However, it all depends on the wording that is in the policy itself.
What is beyond doubt is that insurance companies all over the world will now be revisiting the wording of their policies so as to make sure that they are, themselves, covered for when renewals come around or new policies are issued. If someone wants insurance for a C19 type event then they will now have to take out specialist insurance which most big Thai companies will not offer but a broker may find via an insurer not based in Thailand.
Whilst all of this is going on and a new level playing field is found you can be sure of one thing – insurance prices will go up in the coming months. Even without direct BII, insurance companies say they will be paying out for things like travel insurance, directors’ and officers’ liability, event cancellation and much more – possibly to the tune of USD50 billion.
How to buy BII
There are various ways a company can purchase BII.
However, before anyone rushes for the phone to buy BII, please remember to look at the small print of what is being offered and also some of the grey areas:
Ω To reiterate – the small print – most people do not read this and so do not actually understand what a policy does and, even more importantly, does NOT insure
Ω As a general rule of thumb, if it does not say on the first couple of pages of any contract what is covered then assume it is not. For instance, B&C Insurance will not cover anything to do with C19 even if there is a sub-policy of BII within it. This is only to insure against interruptions caused by much more mundane things such as theft, flood, fire et al
Ω Whilst such things as B&C will correct any physical damage to the company, it will not repair the financial losses that could have been incurred during any interruption to the business. The two most common reasons for business interruption are damage caused by fire and water. Whilst it is easy to repair the actual damage caused, what is not taken into account is the time taken between the event itself and when work gets back to normal. The intervening time is what can cause untold misery as there is likely to be little or no income or revenue
Ω Always look to include a BII indemnity period so you are sure you are covered for a specific period. Whilst many people think that BII is not necessary it may need pointing out that if a company cannot supply what a customer wants then they could look elsewhere for the same product. So, it is not just what you will lose now but also what you may forsake in the future