Companies and individuals affected by the coronavirus are facing an agonising trawl through the small print to see whether their insurance policies cover costs.
Industry experts said a wide variety of polices could pay out, but that epidemics and pandemics were often deliberately excluded from cover.
It is far too early, they added, to make estimates about what the overall cost to the insurance industry might be.
The virus, which has so far infected more than 14,000 people and killed more than 300, has led to widespread disruption, with cities in China being closed off, and travel to and from the country badly disrupted as international carriers halt flights.
"Clients are asking about the extent of their cover," said Clarissa Franks of insurance broker Marsh. "Clients with manufacturing in the key regions of China will be affected."
Three areas of insurance are most likely to be hit: travel, business cover and life insurance.
More than a dozen airlines including British Airways, American Airlines and Cathay Pacific have cancelled some or all of their flights to and from mainland China. Most airlines are offering refunds or rebooking on to different flights.
The large number of cancelled flights, combined with travel restrictions into and out of affected areas, means many travel policies could pay out.
"Travel insurers are bracing themselves for a lot of claims," said Michelle Crorie, a partner at law firm Clyde & Co. "Travel looks like it will be paying out most at the moment."
The travel insurance industry has responded by reminding customers they should look elsewhere in the first instance. An advisory notice issued by Allianz this week said airlines should refund the cost of cancelled flights, while credit card providers might also offer coverage for losses. After that, it said, customers should look at "the terms and conditions of their travel insurance policy".
Companies and events affected by the outbreak are also likely to be looking to their insurance.
California-based Metabiota tracks the impact of viruses on individual behaviour, such as people’s willingness to travel. Its modelling suggests the impact of the coronavirus outbreak could be similar to the Sars virus in 2003, when some hotels suffered a 40 per cent drop in revenues.
According to Metabiota chief executive, Nita Madhav, Sars caused overall economic losses of more than $50bn.
The World Athletics Indoor Championships, which was due to be held in China next month, has already been postponed and there are fears that many other sports events, such as the Formula 1 race due to be held in Shanghai in April, will have to be cancelled.
But the question of whether insurance will cover these costs is likely to be contentious as insurance companies, policyholders and lawyers pore over the meaning of specific clauses in contracts.
"Lots of policies have had exclusions placed in them in the last 10 years due to [insurers’] experience with flu-type outbreaks," said Ms Crorie.
In some cases there will be clauses that allow customers to make claims if the disruption was caused by some sort of government action, such as transport closures.
Companies that have bought more general commercial insurance policies will also have to scour the details. Cover for the costs of business interruption is available, but is usually linked to property damage. So-called non-damage business interruption cover — which might cover the impact of an epidemic or pandemic — is available, but not commonly bought.
"It is towards the rare end of the spectrum," said Ms Franks. "There needs to be a lot of analysis about what the clients need. It’s for the more sophisticated buyers."
Life insurers will also be affected as the death toll rises. Many of them buy their own cover against what are known as “extreme mortality” events such as pandemics, said Franck Pinette, global head of life and health at broker Willis Re. In areas such as Europe, this has been driven by regulations that force insurers to hold capital for pandemic risk.
"Some companies have extreme mortality cover to reduce their capital requirements," said Mr Pinette, although he added that life insurers in Asia had been less enthusiastic buyers of that sort of cover. "You talk to some risk managers in life insurance companies who think it will never happen."
Nevertheless, insurers’ interest in the causes and consequences of pandemics has grown over the past two decades as they assess the impact of outbreaks such as Sars.
Catastrophe-modelling agency, RMS, which made its name modelling extreme weather risks, has started to look at the spread of pandemics. “We have scenarios which cover the characteristics of what we are seeing in China,” said Maria Lomelo, director of RMS LifeRisks. “It captures the susceptible population, the number of people who could be infected and the number of deaths.”
(Published by Financial Times, February 3, 2020)
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