The following is an editorial by Alicja Grzadkowska, senior news editor at Insurance Business. To reach out to Alicja, email her at [email protected].
Businesses and employees across the globe are suffering amidst the coronavirus pandemic. Predictions concerning the long and short-term impacts of COVID-19 are dire in many markets with unemployment in China projected to shoot up significantly in the first half of 2020 and the Federal Reserve estimating that US unemployment will reach a high of 32.1%, according to GlobalData’s “COVID-19 Executive Briefing Report.” Spain, Italy, and India are just a few of the other countries where unemployment is expected to be significant, while in New Zealand, 30% of businesses who took part in the Auckland Business Confidence Survey indicated that they won’t survive COVID-19.
More broadly, the International Monetary Fund forecasts the global economy to contract by 3% this year and the International Labour Organization estimates that 6.7% of worldwide working hours will be eliminated in Q2 2020, which is equivalent to 195 million workers.
The litigation arising out of business interruption losses stemming from government shutdowns has already underscored that some believe the insurance industry isn’t doing enough to support businesses and make good on BI policies, with the question of whether the virus has caused the direct physical loss or damage required to trigger business interruption cover up for debate. There’s also a question of whether the insurance industry has failed to provide enough products to protect businesses from significant losses during times of crisis, like the one we’re currently living through.
Whatever way these lawsuits pan out, the current pandemic is unprecedented in its scope and the insurance industry doesn’t bear sole responsibility for covering losses, especially as a sector that must remain profitable itself. Looking back on the SARS outbreak in 2003, even then standard policy wordings only covered physical damage caused by named perils, undercutting business interruption claims related to the virus and demonstrating to businesses that they couldn’t necessarily call on this coverage to protect against losses from similar events in the future. Where businesses and individuals have been able to get some relief has been from governments, who also have a role to play in providing financial support and have done so in many countries through massive stimulus packages.
What has become evident however is that whether we’re talking about governments, the insurance industry or businesses themselves, the level of preparedness for this event was far too low, despite warnings from experts that such an event would surely occur in the near-term and risk managers regularly highlighting their concerns around a significant business interruption event impacting their business operations somewhere down the road.
Unfortunately, that means that for many businesses, this global health crisis has served as a lesson for next time, rather than a first test of thought-out business continuity plans that can be implemented during a pandemic. It also underscores the need for the insurance industry to provide clear and thorough education on what policies cover versus what they don’t, since battles over BI underscore in heavy, black ink that there wasn’t enough information provided on coverage and exclusions. This is where making policy language easier to understand becomes important, as does the ongoing work of agents and brokers to explain policies to the end insured during the insurance-buying process.
Moving forward, the insurance industry can also extend their risk management expertise to the business community and provide comprehensive services around how businesses can survive this type of crisis and expand their continuity planning to not only include natural disasters or cyberattacks, but also a global event that severely complicates their ability to operate.
Guided by a worst-case scenario, both the insurance industry and its clientele should be better prepared for such an event in the future. Next time, there won’t be any excuses for miscommunications and misunderstandings around policy language, or a lack of preparation.
