Since the outbreak of the virus in China at the end of December, our clients asked question about the impact of the COVID-19 on their business insurance. What are the claims covered by the insurance industry? What are the claims that are not covered? How can I reduce my insurance budget? Is there anything I should know to adapt our insurance to the new situation?
We invite you to listen to the replay of our webinar to know more about the impact of the COVID-19 on your business insurance.
1 – Property damage insurance
Property damages insurance covers physical loss arising out of accident such as fire, explosion, natural events, strikes, riots and many more. Unfortunately, communicable diseases such as COVID-19 are not part of the events covered.
However, valid claims related to accident could occur during this period. We suggest you check your insurance wording to make sure that no clauses will come to limit a potential indemnity from the insurer:
- clause whereby material change in the nature of the risks must be declared
- exclusion whereby premises empty over a certain amount of time will not be covered anymore
- limit of the stock currently insured which is not appropriate with the new situation
If you are not sure about the above, don’t hesitate to contact your insurer or your intermediary.
2 – Business interruption
Although business interruption insurance could vary in scope, it will not cover losses following non-physical damages caused by communicable diseases such as the COVID-19. Exceptions have existed and will exist however, it remains rare because of the magnitude and the complexity of this type of event.
Business interruption insurance is triggered only after physical damages to your assets, your neighbor assets (Denial of access) or your supplier assets.
3 – Liability insurance
Liability insurance provides legal compensation to businesses if a third party brings a claim against them. With the COVID 19 bringing lots of disruption in our daily business life, we see 2 scenarios in which a third party could sue your business.
In a first case scenario, a third party get contaminated in your premises and sue your company to get financial compensation for his/her loss. In this situation, public liability insurance could cover the loss. However, terms and conditions vary in between wordings so its important to read the list of exclusion in your policy, in particularly the one in relation to contamination .
In a second case scenario, your company is not able to deliver the goods or the services to your client causing him/her some financial losses.
Unlike the product liability insurance which rarely cover such claims, a professional indemnity policy might be able to cover some financial losses caused to your client because of your negligence during this period.
In any case, liability insurance will cover the losses caused to a third party only if you could be considered as LIABLE. The COVID 19 has such a big impact on the daily and business life that it may be considered as a force majeure so that the default third party will not be considered liable.
If there is no force majeure clause in the contract, one can consider the doctrine of the frustration of the contract.
4 – Employees Compensation insurance
As a mandatory insurance in Hong Kong, Employees compensation insurance is an important part of the business insurance program. It protects the employer’s liability which is defined by the Employers compensation ordinance (ECO) and the common law. Both regimes stipulate the conditions whereby the employer is liable for bodily injuries at work. The ECO imposes a strict liability regime whereas under the common law, the employees must prove the negligence of the employer in order to compensate his/her loss.
What is happening if one of my employees get the COVID-19?
The COVID-19 is not listed as an occupational disease (yet) under the ECO. The employer is therefore not considered liable unless the employee has been contaminated by an accident. Under the common law, as mentioned previously, the employee must prove that the employer did not provide a safe and healthy place of work.
Would an accident occurring at home be considered as work accident?
As home is the new working place, it would surely be considered as work accident. However, it still needs to be work related. If your accident occurs while you are doing some sport, it will not be considered as related to work.
Is an employer oblige to provide masks?
There is no specific obligation, but employers have a duty of care to provide a safe place of work. We could consider that masks are part of this obligation.
5 – Directors and Officers insurance
Directors’ and officers’ insurance is certainly one of the insurances that experiences most of the claim coming when companies are in financial difficulties. Even if companies did not face third party liability claims relating to the response to the previous SARS in Hong Kong, the insurance market expect more claims now because of the impact of the COVID-19 on the economy.
It is important to notice and understand where the exposures in this respect are and where the claims could come from. We could see 4 different cases
- lack of communication on the impact of the COVID 19 on the financial situation of the company.
- Failure to act in the interest of the creditors of the company by not investigating the financial situation of the company
- Failure to protect the IT System of the company leading to breach of privacy of cyber attack
- For the listed company, it could be the non-compliance to the reporting and filling duties
Directors and officers insurance could cover the above cases but of course terms and conditions vary and each insurance wording must be carefully checked.
6 – Cyber insurance
Cyber insurance covers the financial losses triggered by a cyber-attack and ensure a continuity of the business. It covers some key insurable expenses such as IT forensics or business interruption
With more people working from home, Cyber exposures are increasing:
- the work environment is less secure when working from home with an easier access to the company’s data for the hackers
- using a laptop and carrying it around increase the risk of losing it
- certain platforms for virtual meeting are not secure
Cyber insurance is therefore an important tool to mitigate these increased exposures.
7 – Credit Insurance
Credit insurance is certainly one of the tools to help and support businesses to manage the commercial risks of an unpaid invoices. Besides being an insurance, it could help with information on the client financial situation and the setting up of payment terms.
COVID-19 will certainly bring more liability and cyber claims to the insurance market in the near future. Associated with the decrease of the financial results on the investment side, we will most likely see an increase of the rates in the coming months for certain type of insurance.
Don’t hesitate to send us an email with your contact details in case you want to review your business insurance program.
You can also visit our website to find out about the other insurance services we offer.