Can business interruption insurance cover coronavirus claims?

Further, the Indian insurance sector is at a nascent stage, wherein BI insurance coverage is commonly purchased by mid-size and large corporates. Furthermore, the proclivity in India is to purchase insurance towards high-probability risk events, namely, fire, machinery breakdown, flood, earthquake, etc.

Consequently, most BI policies sold in India are simply an extension of property insurance and do not provide coverage for BI losses not arising from physical damage to property and assets, including the loss of profit from a pandemic, such as COVID-19.

The risks that businesses face today are strikingly different from those witnessed a decade ago. These emerging risks may disrupt businesses considerably, without necessarily causing physical damage to property.

Thus, in light of recent risk events, such as the Australian bushfires, cyber-attacks, Brexit, and the most recent COVID-19 outbreak, matured jurisdictions have begun to look at insurance coverage for BI losses that may not arise from or be accompanied by damage to property, also known as non-damage business interruption (non-damage BI or NDBI).

In developed insurance markets, the NDBI cover is primarily sought through policy add-ons/extensions to existing BI policies, and infrequently through a standalone NDBI insurance policy. Common among these are BI extensions for the denial of access to premises by the civil authority action, infectious diseases, and supply chain disruptions.

Moreover, leading insurers are developing and offering specific products, such as pandemic insurance. Though the adoption rate of NDBI insurance in matured insurance markets is slow, a small but increasing number of companies stand adequately covered against BI losses not arising from the damage to property.

A recent example of variance in seeking insurance cover between the developed insurance market and the nascent insurance market was witnessed at England Lawn Tennis Club in Wimbledon, UK. The club may receive US$141 million on the cancellation of a tournament as it was covered by pandemic insurance. However, the Indian Premier League, which did not have such an insurance cover, stands to incur losses of about $495 million.

Respond now

A low probability but a highly disruptive event, such as COVID-19, has highlighted the existing gaps in the outlook of providing and seeking insurance cover globally and especially in India. Indian corporates must now examine existing insurance policies, in consultation with insurance advisors, to determine if coverage exists for the losses caused by the pandemic.

Where coverage may be available, companies would need to follow the prescribed procedure to submit claims. Where the policy wordings are ambiguous, seeking legal and expert advice to determine potential admissibility of claims is advisable. It may be prudent to notify, prepare, and/or submit claims to insurers, to benefit from any ex-post regulatory direction broadening the coverage in light of COVID-19.

Insurance claims now have a high chance of resulting in a dispute and corporates need to maintain detailed records of losses and robust documentation that can serve as evidence.

In the post-COVID-19 world, we expect to see more discussions and collaboration among stakeholders in the Indian insurance ecosystem to bring about a paradigm shift in the perception of business risks and the pursuit of insurance in India.

Corporates need to continually assess emerging risks for their businesses and insurers need to widen product offerings. The ongoing global pandemic has been a wakeup call for stakeholders of the Indian insurance sector to evolve, innovate, offer, and purchase suitable insurance products to face the low-probability but high-disruption emerging risks of the day.