COVID-19 throws up new challenges on relevance of insurance to cushion business losses

Recent losses occasioned by COVID-19 pandemic have thrown up questions about the relevance of insurance to businesses and institutions.

This is because many sectors of the economy, especially aviation and hospitality, have been in comatose since the last week of March 2020, when the Nigerian government ordered lockdown to contain the spread of the pandemic ravaging global economies.

In this regard, these sectors have had to deal with payment of salaries, lay off of valuable personnel, infrastructure decay, debt servicing and loss of customers and wastage of other resources without any compensation from insurance.

This is because many believe that it is at a time like this that insurance could come in to take care of the gaps, for example – paying workers for an agreed period of time during lockdown or providing projected profits for its insured.

However, experts in insurance, giving insight into the matter, say though there is Business Interruption Policy that takes care of business losses, the case of Covid-19 is novel and fails to meet insurance principles.

Business interruption insurance is defined as coverage that replaces income lost in the event that business is halted due to direct physical loss or damage, such as might be caused by a fire or a natural disaster. Even some all-risk insurance plans have specific exclusions for losses due to viruses or bacteria.

Mayowa Adeduro, managing director/CEO, Law Union and Rock Insurance plc, explains that Covid-9 pandemic is novel; it is an unusual occurrence that affected all countries of the world, and there was no previous statistics or estimation of possible disruption and loss of economic values.

Insurance being a business line on scientific modelling of probable loss will not dabble into pandemic loss, which cannot be quantified or ameliorated, Adeduro says, stating that in both life and non-life insurance there is no cover for pandemic event.

According to Adeduro, the losses suffered by the aviation sector and hospitality businesses are not within the realm of fortuitous. This is a global loss affecting all strata of social and economic life of global community, he notes.

“It is possible to have insurance cover for Covid-19 event in near future, but the principles underpinning insurance business or insurance interest must be present. That is, it would not be a global occurrence, it must be fortuitous, and it must be capable of being remedied either by repair, replacement, reinstatement, reimbursement of losses quantified. For life insurance, there must be known cure for the sickness of Covid-19,” he states.

He states clearly that there is no Covid-19 insurance in Nigeria; however, it is possible for a company to offer ex-gratis payment to a client who suffered Covid-19 losses out of commercial relationship not on the basis of insurance contract provided. And I should think that can come if only one or two clients are involved, he says.

Gbenga Olawoyin, managing director/CEO, Prorisk Insurance Brokers, says for now there is no Business Disruption Insurance cover in Nigeria, stating that instead what you can fine in the market is Combined All Risk Insurance Cover, which adds as exclusion risks caused by riots or natural disaster.

Olawoyin however notes that customers always decline to include Combined All Risk clause because it usually adds to premium amount.

So, I can tell you that the business interruption policy is expensive, and the technical capacity for it is still lacking in our market, and such cover like Covid-19 could wipe out a whole market, he says.

In the UK, for instance, this is already generating legal action against some insurance companies, as they claim that pandemics like Covid-19 cannot be covered.

Rishi Sunak, UK Chancellor of the Exchequer had said, “For those businesses which do have insurance policy that covers pandemics, the government’s action is sufficient and will allow businesses to make an insurance claim against their policy”.

But in practice, however, many policyholders have experienced difficulties in successfully accessing claims against insurers for business interruption losses. A number of major insurers and their representative bodies have stated their belief that, in most cases, business interruption policies will not respond to losses caused by Covid-19.

In turn, a number of policyholder action groups have stated their intention to pursue litigation against insurers for business interruption losses arising from Covid-19, and the Financial Conduct Authority has taken steps to seek clarification from the English courts on the interpretation of certain common policy provisions.