Risk managers look to quantify Covid-19 exposures and insurance protection as disease spreads

Risk and insurance managers face the challenge of keeping boards informed about the potential impact of the coronavirus (Covid-19) outbreak, which threatens huge supply chain and economic disruption as it spreads beyond China and hits Europe, Riskonnect Inc, a global integrated risk management software provider, told CRE. The disruption caused by Covid-19 may be unprecedented in modern times, in terms of scale and impact on supply chains, according to Jim Wetekamp, chief executive officer of Riskonnect. Companies initially focused on employee safety but as the crisis has deepened, attention has turned to supply chains and the economic impact from quarantine measures and changing consumer demand, he explained. In the past week, a number of companies have warned investors that operations are being affected by disruption to supplies, or from falling customer demand. Car sales in China, for example, fell 92% in the first half of February, according to the China Passenger Car Association. Car manufacturers have warned they may have to close plants in Europe due to shortages of critical parts. Technology company Apple said it may miss revenue targets in the first quarter due to shortages of phones manufactured in China, as well as a fall in sales, due to coronavirus. “Following employee and customer health and safety, risk management leaders are most concerned with macroeconomic and supply chain disruptions, and the insurance implications. Organisations are looking at the risks to continuity of supply, and how efforts to remediate disruption might impact quality,” said Mr Wetekamp. The spread of coronavirus to Europe, the Middle East and South Korea could mark a new phase in Covid-19, as its distribution and impact becomes even more difficult to predict, according to Mr Wetekamp. On Wednesday, the World Health Organization (WHO) revealed that there were, for the first time, more new cases of Covid-19 reported outside China than within. Four European countries have announced their first coronavirus cases linked to a growing outbreak in Italy, where there have been more than 300 cases and 12 deaths. The Ireland vs Italy Six Nations rugby match has been postponed as the number of coronavirus cases rises in Italy and Europe. With the coronavirus spreading further around the world, the WHO has warned that countries outside China are “simply not ready” for a pandemic. “The situation in Italy continues to illustrate the aggressive and rapidly changing impact of the coronavirus. If the outbreak continues to spread, the impact will get more severe, especially if consumers change their buying behaviour and the supply chain is disrupted further,” said Mr Wetekamp. “Many will be looking at the events in Italy, which to date is the largest outbreak so far in a Western economy, and the impact of authorities restricting travel and public gatherings. We are also starting to see the global impact on financial markets, with the realisation that the virus may not be contained to Asia,” he added. Risk managers are under pressure to keep boards apprised of risks associated with Covid-19, explained Mr Wetekamp. In many cases, they can draw on past events and supply chain risk scenarios, but the potential economic disruption is harder to plan for and mitigate, he told CRE. “Most companies will already know the sensitivity of their products and services to critical suppliers. Those risks should already be identified, tracked and quantified, but the question will be how quickly this information can be accessed and adapted,” said Mr Wetekamp. “Organisations may be less prepared for the rapid decline in consumer demand, which is less controllable and where there are fewer options to mitigate fluctuations. There could also be a knock-on effect of lower demand downstream in the supply chain,” he said. The escalation of the coronavirus outbreak highlights the need for companies to have instant access to quality risk data, according to Mr Wetekamp. Companies that have an integrated view on risk across their business will be in a better position to react to events and provide boards with up-to-date information on exposures, risk mitigation and insurance, he said. Marsh Risk Consulting has warned that most businesses are not prepared for any prolonged impacts from a globally-spreading infectious disease such as the coronavirus on staff welfare, operations, supply chains and the economy. In an advice sheet, it urged organisations to review resilience and response strategies to mitigate the risk. Riskonnect’s risk and insurance clients have been seeking assistance to help understand their exposure to coronavirus and the insurance implications, according to Mr Wetekamp. “Risk managers on the insurance side want to understand the risk, where they can absorb some of the impact through risk transfer, and whether there is a possible impact on their captive,” he said. Companies will not be able to draw on specific coverage for coronavirus, but there might be “niches” of protection available in some policies, he continued. Property and business interruption insurance may contain some cover, for example, if property cannot be accessed due to its proximity to an outbreak. Workers compensation insurance and general liability insurance could also be affected, he said. “There is a lot of analysis going on to see if insurance is available and what a claim might look like if, for example, a property or asset is out of use due to coronavirus. There are also questions for casualty lines, such as liability related to customers in general liability or workers compensation for business travel,” said Mr Wetekamp. With insurance cover limited, many companies in the maritime industry will be forced to take a financial hit from the coronavirus outbreak, law firm DWF has warned, adding that the bill is likely to run into “billions of dollars”. Meanwhile, European and US insurers are likely to comfortably deal with claims from the current coronavirus outbreak, according to S&P.

Risk managers look to quantify Covid-19 exposures and insurance protection as disease spreads

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