COVID 19 – indirect effect coverage gap on steroids


Unlike a typhoon or hurricane, the current catastrophe cannot be seen, just its effects.  The novel coronavirus (COVID 19) is now and will be causing personal, business, and government disruption and economic loss.  You can’t see the virus, has relatively small direct effects (120,000 persons contracting the virus of some hundreds of millions exposed), but it’s secondary impact ripples widely.  It’s economic impact will eclipse that of natural disasters of the past several years.  Analogous to the concept of velocity of money there is a ‘velocity of consumption’ that has economic loss effects that are not subject to indemnification. 

Patrick Kelahan is a CX, engineering & insurance consultant, working with Insurers, Attorneys & Owners in his day job. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

COVID 19 is on the front risk burner of pretty much everyone on the globe, and as discussed in a prior blog the effects of the outbreak are wide and deep in the business world.  It is becoming clearer how those effects are impacting the global economies, and if the risk exposure has potential insurance recovery:

  • As reported in the Asia Insurance Review, the Russell Group estimates China trade is exposed to an estimated US $122 billion trade risk due to business interruptions and imbalance in supply chains.  This projected risk is not limited to Chinese exports, but to imports as well, e.g., crude oil and circuit boards.  What is not calculated into the $122 billion is the ‘start up lag’, or the materials and labor costs to get production and services to pre-outbreak levels.  And a great unknown- the volume of businesses that simply will not survive the break in business the outbreak has caused.  Probability of insurance recovery- low.
  • Pandemic catastrophe bonds issued by the World Bank have experienced a crash in price in the secondary markets due to expectations that a full draw-down of these higher risk bonds as triggering conditions continue to be met. The bonds serve as a backstop to the Pandemic Emergency Financing Facility.  The details and ramifications of the outbreak on these bonds is well covered by Steve Evans of Artemis, “Pandemic cat bond price plummets on growing coronavirus threat”. Probability of bond holders recovering price- low.
  • Call center operations (often sited in countries other than primary consumption markets) have been affected and the potential for more to be closed is high. In addition as discussed by Mike Daly of 360Globalnet in this advisory, disruption in one facility may be compounded if a firm’s continuity plan includes a back up facility that is also subject to closure.  Absent a plan to work virtually there may be business disruptions that cannot be recovered. Amazon is planning a full organization test of VPN work wherein all employees are being directed to connect to the firm’s operations via remote connection during 3/05/2020- a bench test of organizational resilience.  Probability of recapture of business due to disruption- low.  Probability that business interruption cover applies for a viral outbreak- low.
  • Gig workers in all markets are losing business as outside consumption and movement lessens due the encouragement to the public of limiting exposure outside of one’s dwelling. And, as regions wrestle with the concept of contractor or employee, persons who contract the virus due to exposure during an ordered ‘gig’ may have a case for workers compensation cover (US).  A compounding insurance (or lack of) issue for gig workers is the relative low percentage of gig workers who have health insurance provided to them, a reality that will be costly to the sector.  Inroads are being made to provide gig workers low cost, comprehensive personal insurance by firms like Collective Benefits (UK), and for on demand cover for fares such as what is offered in Singapore by Grab Insure (Grab also has announced COVID 19 cover for drivers.)  Probability of gig workers having health insurance recovery- low.
  • A first line industry that has been significantly impacted by the outbreak is the travel industry. Business interruption cover is generally excluded for health outbreaks, whether it’s inability for staff to man the facilities or reduction in visitors.  Certainly parametric options have become more available and in place, e.g., loss of business for tourist attractions.  Individuals’ travel insurance may not have cover for missed travel due to fears of exposure (some CAFR- Cancel For Any Reason are purchased exceptions to that), but illness while traveling and repatriation may be.  An excellent overview of travel insurance issues is found here in CoveragerProbability of cover for cancelling a trip solely due to concerns about COVID 19- low.
  • Companies that have been on life-support may suffer the fatal blow due to business downturn, e.g., airline Flybe, who have announced a probable collapse of its business due to COVID 19 . The article notes that the firm has been on shaky ground, thus supporting the contention that COVID 19 is most apt to affect those who are already compromised, even businesses. Probability of indemnification for lost business- very low.  Passengers- probably on their own.  (Maybe @EUFlightRefund can assist)

There sure are other unexpected influences on business that may benefit firms due to reactions to an economic downturn., e.g., the US Fed’s action to drop US interest rates 50 basis points, the erosion of market capitalization from stock price drops (leverage, pension values), or spot shortages of commodities due to reaction purchases.  A real issue is the non-recoverable gross domestic product that results from drop in production and ensuing drops in consumption.  A double pronged effect- supply and demand effects- will take an absolute half percent off of 2020 global GDP increase, or an almost one half trillion US dollar impact.  The reader surely realizes this impact intuitively or by other sources, but a good overview of COVID 19 global GDP impact can be found here.  One must remember- lost production is seldom fully recovered.

As for now and during the outbreak’s spread, consider the far-reaching economic impacts of COVID 19, have contingency plans as one best can, wash your hands regularly, try to not touch your face, stay home if you feel unwell, and have plans for recovery once the outbreak ebbs.  Oh, and realize there will be another similar occurrence in the future, and have insurance plans to reduce your coverage gap.


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One comment

  1. […] Thursday Patrick Kelahan @insuranceeleph1, our US based Insurtech expert (a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners who also serves the insurance and Fintech world as the ‘Insurance Elephant’) wrote COVID 19 – indirect effect coverage gap on steroids […]

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