Executive summary – risks and insurance issues from COVID-19

We have all been impacted by the effects of the COVID-19 pandemic. We must be properly informed of the issues we are confronted with, take advice and mitigate against risk to ourselves, our business and the wider community.

In this release, addressed to our key clients and referral partners, we provide our observations on common insurance products held by our clients and the effect of COVID-19 on those covers. The products we address include:
  1. Material damage and business interruption – we address the implications of “infectious diseases” on consequential loss, amongst issues of rental default. There is in most circumstances limited coverage available. We observe that unoccupied properties must be maintained in a good state of repair and security measures must stay in place. There are options for premium relief depending on the circumstances of the policyholder, particularly as regards declared values for consequential loss – gross profit calculations may be significantly impacted.

  2. Public and products liability – risk for legal liability may exist if companies fail to take steps and develop a pandemic plan. It may be arguable that the there was a failure to warn of the risk of COVID-19. The failure to do so caused “injury” to third parties. Premium relief may be available if turnover is set to reduce. Some insurers have agreed to deferred premium payments for 6 months.

  3. Corporate travel – policy response will turn on the date COVID-19 is considered a “foreseeable circumstance” by the insurer. Travel providers (airlines/travel agents/etc) must be approached for refunds prior to submitting insurance claims. Premium relief is available given the likelihood that there will be less travel.

  4. Workers’ compensation – employers must develop, continually update and clearly communicate a pandemic plan for their workers. Premium relief may be applied for if employers have wage adjustments (including mid-term).

  5. Professional indemnity insurance – quality control, peer review, adequate IT systems and adherence to professional standards/guidance are key. Professionals continue to advise on unestablished, changing Laws and Regulations. Contemporaneous notes (file notes) are important. It is unlikely that there will be any premium relief across this class. There is a significant onus on companies to prepare comprehensive information regarding its response to COVID-19 when preparing its next renewal proposal.

  6. Directors’ and officers’ and company liability – one of the most important classes offering protection to companies and their directors if if they fail to take appropriate steps to respond appropriately to COVID-19. Key risks include the mismanagement of company finances, continuous disclosure, insolvency, unfair dismissal, workplace discrimination, liability for work health and safety, and claims brought by regulatory authorities. Whilst insolvency laws have been developed to assist companies and their directors, duties still exist. It is very unlikely premium relief will be attainable for this policy class. Coverage issues include ensuring that your policy has no insolvency exclusion (this will turn-on the current “proven” solvency of the company at its last renewal) and making sure there is cover for the company, as well as its directors and officers.

  7. Cyber – a company’s computer network has never been as critical like it has during the COVID-19 pandemic. That said, many companies lack adequate risk management, governance or response plans. Their networks have not undergone stress testing and otherwise, they remain “un” or “under” insured for “cyber risk”. Directors must urgently turn their mind to mitigating against these risks. A review of their systems and networks, its vulnerability, including a business impact assessment (focusing on consequences if the network is down) and emergency response plans are critical. This cover will be very difficult to obtain unless a review is completed, and the board has turned its mind to mitigate against cyber exposure.

  8. Commercial crime – “social engineering” or “identity fraud” have been increasing. Commercial crime policies vary in the cover they offer. Whilst theft and malicious damage are covered under material damage policies, companies must brace for a spate of “new crime” that may emerge during and following the pandemic. Rates are expected to increase on this class.

  9. Trade credit – insurers have already started to revise appetite for this cover (insuring bad debts).

  10. Political risk – protects companies for investments made overseas due to acts of Governments. COVID-19 presents a range of issues for companies with offshore investments. It is unclear what decisions overseas Governments will take after the pandemic.
Common issues have emerged across the main industries and professions we advise. We have identified these and provide observations for each:
  1. Construction: issues with delay, including those caused in connection with materials, contractual issues with Force Majeure Clauses and practicalities involving Extension of Time provisions. The financial implications of same including increased finance and insurance costs.

  2. Professionals services including:

    • Law firms – emerging risk with work-form-home requirements, changes to legal practice and procedure, issues for Firms with major hearings being vacated

    • Accounting firms – perhaps having the greatest obligations to advise business on developing Government relief and changes to tax, and the reliance on the accounting profession for the ongoing financial viability of particularly SME business. Concerns with regard to increasing assistance to clients for credit.

    • Property valuers – risk with inspections, market volatility and generating comparable sales.

    • Health (pharmacies, medical centres, health and aged care providers) – lessons learned from the SARS epidemic; mitigation for exposure for claims brought by patients and customers for compensation if they contract COVID-19. Consequential impacts on reputation and company value.

    • Technology professionals – increase in contractual risk. Particular attention should be paid to indemnities given for consequential loss.

  3. Strata and owners’ corporations – risk to strata managers and owners’ corporations regarding “failure to warn”; risk management requirements that insurers will need to see addressed at the next renewal.

  4. Australian Financial Services and Credit Licensees – risk presented to wholesale and retail funds arising from market turmoil from the pandemic, including investors seeking to “liquidate”; and most importantly, the various steps that will need to be demonstrated to obtain quotes come next renewal.

Regard must be had to guidelines and protocols issued by peak industry and professional bodies across all sectors.

Insurers have been exposed to significant losses at the end of 2019 (bushfires) which have extended into 2020 (bushfires and then floods). This being in the midst of an already “hardening” market. COVID-19 has exposed insurers to significant losses already – event cancellation for Wimbledon rumoured to exceed $140m – and it is expected broader classes will be impacted.  Insurers have been responsive to assist where they can. Those with whom Bellrock work, have developed initiatives to assist with premium relief and have in some circumstances expedited claims payment. That said, like all business, COVID-19 presents further challenges to what was an already affected market.

Comprehensive disclosures including your company’s response to COVID-19 will be necessary to support your risk information during  your next renewal .

The overarching point that we wish to convey is that directors must be proactive to ensure that their company remains viable, protected and can appropriately respond to the issues presented by COVID-19. Directors who take this approach will position their business to flourish when the pandemic settles. Those who do not may likely see their companies fail. Worse, they may be exposed to liability for failing to adequately discharge their obligations as directors.

The Team at Bellrock invites you to contact us if you have any questions regarding this release, or otherwise have questions regarding general insurance, risk management and the implications of COVID-19.

A copy of our release can be downloaded here