Business cover for Covid-19 losses, what to tell your clients
FIA President Peter Olyott has prepared a podcast and a guidance note for FIA members to assist with queries from their clients around insurance cover and the Coranavirus: Covid - 19.
Click HERE to access the link to the Podcast.
Many South African insurers have ceased multi-peril specialist extension covers for all new business with immediate effect due to theCovid-19 pandemic sweeping across the globe. This will directly impact the local tourism and leisure industry, which has been decimated by international travel bans implemented by governments around the world in an attempt to halt the spread of the virus, or "flatten the curve".
Concerning existing clients, insurers have followed varying approaches. Some have decided to exclude new covers with immediate effect, while other insurers will continue to provide cover as it exists until the next renewal when cover will fall away. A few insurers are excluding new business immediately and have stipulated to existing clients a particular date when the extension cover will no longer be active.
BI cover in SA
Most businesses in SA don't enjoy business interruption (BI) cover for contagious or infectious diseases, particularly not for an interruption occurring at premises outside of the traditional territorial limits of the typical multi-peril policy.
Large corporates reliant on foreign suppliers may in the past have been covered for an incident that took place at other premises. These typical non-direct damages may include shark bite, suicide, murder, extreme weather conditions, and contagious disease coverage. At present, interpretation issues around the policy exclusion of Covid-19 may arise, seeing that severe acute respiratory syndrome (SARS), of which Covid-19 is a variant, has been excluded in the past.
For South African businesses operating in the leisure sector, including guesthouses, bed-and-breakfasts, hotels, lodges, holiday apartments and share-block operations (timeshare), there have been various "specialist offerings" purporting to provide these extensions to cover.
On existing business with these extensions, insurers may provide some form of cover relating to Covid-19, if the loss has occurred at the premises and is attributable to the virus. Actual verification of this will depend on the particular Insurer wordings, the client circumstances and of course the interpretation of how the declarations and interventions by the state affect these covers.
Triggers for these losses include:
- Cancellations due to travel bans.
- A declaration of a disaster or state of emergency, which may cause new restrictions, rules, and measures resulting in the cancellation of bookings, reduced use or no shows. All of which results in a reduction in turnover.
As with all claims of this nature, the insurer will tend to focus on the particular facts of the matter. For instance, is a travel ban invoked in the UK, resulting in the cancellation of tourist travel to South Africa, seen as a potential loss under the policy? Or does the travel ban for tourists from the UK have to be invoked in South Africa for the cover to be triggered?
These questions can only be addressed when the particular extension of insurance cover is scrutinised in the context of the territorial limits of the policy, extended premises, and the wording of the specific insurer extension – does a SARS exclusion include Covid-19?
For advisers, the recommended route is to advise that, at present, it is not certain whether these policies with extended BI benefits will respond to these types of claims, as the particular circumstances of each claim must first be assessed against each specific policy wording of each insurer.
Where the cover and extensions to cover appear to exist but are yet to be tested due to the vagueness of wordings, it is prudent to notify insurers of a potential claim as to not be guilty of late notification of a claim.
If a client wants to claim for losses related to Covid-19 but the extensions to cover aren't evident, there is a possibility for a professional indemnity claim, but, again, you must notify the PI insurer of this as soon as possible.
The Covid-19 virus is now in the general domain and falls within an adviser's scope of advice, irrespective of whether there are insurance coverages or not. While the focus has rightly been on the people of South Africa ¬– their exposures, concerns, and measures to slow down the spread of the virus – little has been written about the impact on advisers' clients and the insurance sector.
The FIA will be issuing regular material dealing with extension policy wordings, interpretation of these wordings, and the application of technical matters relating to policy structures for particular risk types.
Please remember that we are here to assist you wherever we can. Where the resources don't exist in-house, we will provide external resources from our members to assist you with any queries. We wish you well during these extremely tough times.