INDECS – INSIGHT 19

The Coronavirus Covid-19 pandemic is an unprecedented event in our lifetimes. As we try to grasp the scale of the times we are living through, we are all finding ourselves having to adjust to a new normal whether as individuals, companies or nations.
At the time of writing, it is still early days for the insurance sector and we wait for trends to become established so in this INSIGHT we discuss the questions clients need to ask of themselves and the likely mindset of their insurance providers as one of the busiest renewal periods of the year, the June 30/July 1 season, looms over the horizon.

How will my renewal be tackled by Brokers and Insurers?

Your renewal can still happen. Technology allows brokers and insurers to be available as they work from home during the “lockdown” restriction period.

Face-to-face negotiations can take place online between lead brokers and lead insurers which can be placed electronically with the London Insurance Market’s 2016 electronic placing platform, PPL, to support these negotiations, removing paper from the process and creating a digital information flow and audit trail.

However, although the technology is in place, there will be inevitable delays caused by challenges on the availability of key individuals and increased processing time. Accordingly, our recommendation is for Insureds to ensure a dialogue is opened with insurers via their broker as early as possible to ensure the process is conducted in as smooth a way as possible. Even if the renewal isn’t due until the year end, it would be prudent to discuss and agree a timeline with your broker.

How can I prepare and what should I be providing to Insurers?

As well as the familiar underwriting information provided for any renewal, it is certain that insurers will be seeking assurances that Covid-19 has not impacted the safe operation of their Insureds’ businesses.

Accordingly, it is reasonable to expect that the following will be on any additional information requirement list:

• What measures are in there in place to protect operations and key workers?
• What measures are there in place to ensure contractors and sub-contractors are maintaining standards and continuing to provide key staff.
• Has Covid-19 (whether Governmental directives or otherwise) impacted the business in any way?
• Are normal maintenance regimes being impacted in any way?

A proactive approach is recommended to this aspect. Rather than wait to be asked once the renewal negotiation is under way, we would recommend a pack addressing these questions is made available to your broker from the outset. This could make a big difference to the eventual renewal you achieve.

What can I expect from my Insurers?

Insurers will always seek to protect their book of business from unanticipated losses. If Covid-19 losses could affect their portfolio there will be a drive to (a) exclude any future losses that could be attributable to Covid-19, or similar epidemics/pandemics, and (b) increase premium rates to protect perceived current exposures.

Coverage Response

The London Market Association (LMA) have already issued the following new clauses, which are provided in full at the end of this INSIGHT –

• Coronavirus Exclusion (LMA 5391 04 March 2020)
• Communicable Disease Endorsement (LMA 5393 25 March 2020)

and insurers can be expected to impose one or both of these clauses on all renewals. Similar clauses have been introduced for reinsurance treaty business.

The Coronavirus Exclusion clause is a variation on the existing Notifiable Diseases exclusions for which coverage can be brought back for an increased premium. However, at the time of writing, it would be extremely difficult to envisage insurers being able to price any coverage for Covid-19, so one can expect to see an explicit exclusion for the foreseeable future.

The Communicable Disease Endorsement is a broad exclusion designed for property insurances. Its very inclusion on a Property Damage policy would apply equally to any accompanying Business Interruption coverage

Future Terms

Prior to the pandemic, the 2019/2020 renewal season witnessed premium rises in almost every business sector as the market turned with insurers reducing capacity and increasing rates to combat successive years of a challenging soft market.
Although the scope for Covid-19 specific losses may be ultimately limited, the uncertainty will continue to drive rates higher. Also, as the traditional marketplace will be virtual, each negotiation will take longer and the opportunity for brokers to play the market for alternative indications is bound to be considerably reduced. In such a distressed market, buyers may find themselves facing higher premiums in a “take it or leave it” position.

Won’t Insurers simply offer a policy extension?

It is entirely possible that extensions will be offered but, given the factors discussed above, it is highly unlikely that extensions will be at existing rates, since the market was already on the upward trajectory well before the arrival of Covid-19.
Further, any extension will be certain to be subject to coverage restrictions such as the clauses described above.
If buyers find themselves contemplating an extension, our recommendation would be to seek as long an extension as possible, ideally to take the next set of negotiations beyond when a return to some sort of normality can be contemplated.
My policy has a Long Term Agreement. Can this be broken?

These are extraordinary times, but the policy is a contract and therefore subject to its terms and conditions including any Long Term Agreement (LTA) clause.

Although the specifics of each clause will vary, they will generally permit cancellation for non-payment of premium, insolvency, breaches of contract, changes of ownership, war and related perils and insurer run off.

Any LTA written in the London market will permit insurers to review premium on an annual basis, often with a stated formula based upon loss experience.

We recommend Insureds closely examine any LTA with their insurance broker or adviser to check that the clause can be relied upon and to gauge their exposure to increase premiums and modified terms and conditions.

Claims

From the viewpoint of Operational and Constructions Risks, the immediate focus for claims would centre on Business Interruption (BI) or Delay in Start Up (DSU) policies.

This is an area that is being developed and will be a key discussion point over the ensuring months. INDECS is advising clients in relation to claims arising from COVID-19 and standby ready to assist new and or existing clients during this time.

CORONAVIRUS EXCLUSION
Your Insurance Policy does not / This Insurance does not {delete as applicable} cover any claim in any way caused by or resulting from:

1. a) Coronavirus disease (COVID-19);
2. b) Severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2);
3. c) any mutation or variation of SARS-CoV-2;
4. d) any fear or threat of a), b) or c) above.

LMA5391 04 March 2020

COMMUNICABLE DISEASE ENDORSEMENT

(For use on property policies)

1. This policy, subject to all applicable terms, conditions and exclusions, covers losses attributable to direct physical loss or physical damage occurring during the period of insurance. Consequently and notwithstanding any other provision of this policy to the contrary, this policy does not insure any loss, damage, claim, cost, expense or other sum, directly or indirectly arising out of, attributable to, or occurring concurrently or in any sequence with a Communicable Disease or the fear or threat (whether actual or perceived) of a Communicable Disease.
2. For the purposes of this endorsement, loss, damage, claim, cost, expense or other sum, includes, but is not limited to, any cost to clean-up, detoxify, remove, monitor or test:

2.1. for a Communicable Disease, or

2.2. any property insured hereunder that is affected by such Communicable Disease.

3. As used herein, a Communicable Disease means any disease which can be transmitted by means of any substance or agent from any organism to another organism where:

3.1 the substance or agent includes, but is not limited to, a virus, bacterium, parasite or other organism or any variation thereof, whether deemed living or not, and

3.2. the method of transmission, whether direct or indirect, includes but is not limited to, airborne transmission, bodily fluid transmission, transmission from or to any surface or object, solid, liquid or gas or between organisms, and

3.3 the disease, substance or agent can cause or threaten damage to human health or human welfare or can cause or threaten damage to, deterioration of, loss of value of, marketability of or loss of use of property insured hereunder.

4. This endorsement applies to all coverage extensions, additional coverages, exceptions to any exclusion and other coverage grant(s).

All other terms, conditions and exclusions of the policy remain the same.
LMA5393 25 March 2020