Businesses that could be most affected by a widespread swine flu outbreak—like airlines or movie theatres—won’t find much recourse from commercial insurance policies.
If the outbreak turns into a full-scale pandemic, the best-protected organizations will be those with strong business continuity plans and policies, according to Gisele Norris, Aon’s national director, healthcare. Although a major pandemic represents a huge business interruption exposure for many sectors, “there’s no coverage,” she says. Most coverage only applies to an organization’s property, and “it’s only going to respond to covered perils and pandemic isn’t one of them.”
As swine flu cases continue to mount—at press time, seven countries, including Canada, have reported cases, according to the World Health Organization (WHO)—life and health insurers will likely be more affected than the P&C sector. A Risk and Insurance Management Society (RIMS) advisory—issued April 28—urges organizations to review their coverage, noting that “workers compensation as well as employee life and health policies are all on the front line when dealing with swine flu.” And while some life insurers may have some level of protection with insurance-linked securities—similar to cat bonds—that could be triggered and paid out because of a pandemic, the outbreak could also affect solvency for some life/health insurers, Norris says. Although projections and modeling showed that they could withstand a pandemic, “that was a couple of years ago, we’re in a whole different world now,” she points out.
And P&C insurers could still see some fallout. “If investors perceive that a company has not prepared adequately for a pandemic and bad things ensue, including loss of earnings, there may be D&O implications,” Norris says, adding that liability issues would likely be determined by the courts. P&C insurers have already factored illness into event cancellation coverage—many policies also include exclusions for diseases, she notes.
Managing the risks associated with this new outbreak is difficult, since it has a longer incubation period than initially thought. “So if people are walking around for three days without knowing they can infect people, there’s no way to manage that risk by quarantine, which you’d use for other diseases,” Norris says. The only way to limit the risk, she says, is by limiting the ways that people come together, whether that’s in public places or at work.
So, how can an organization manage the risk? Norris points to a strong business continuity plan—one that plans for high levels of absenteeism, supply chain interruptions, and also has a contingency plan for employees to work from home, and a well-defined “trigger” point—such as a certain number of cases in your community– that puts the plan in motion, coupled with a strong communications plan. The problem? Most business continuity plans don’t consider pandemics, and “only plan for their building not being available,” Norris says. “The building’s been contaminated, or it burns down. But this is loss of personnel, it’s a completely different kind of exposure.”
It’s one that organizations probably won’t overlook again. “If you talk to experts, they’ve always said there’s a 100% chance of it [a pandemic] happening again,” Norris says. “It happens three times a century and it has for 500 years.”
To comment on this story, contact us.