Business insurance: The impacts of COVID-19
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Business insurance: The impacts of COVID-19

MB+M Business Services Update: Business insurance: The impact of Covid-19

As more companies and their staff face disruption, businesses and their boards might activate new and untested contingency plans. It’s hard to miss the measures that have been put in place by businesses to ensure they are Covid-secure, even if you aren’t involved in the business world. Many shops, for example, now display a wear your mask sign in the window to remind customers that it is a legal requirement to wear a mask in a public place. This helps the shopkeepers to manage the risk of having a Covid-positive customer inside their shop, but there are other risk management solutions too.

One key risk management tool you should consider is insurance. Directors should ask themselves, apart from Directors & Officers cover, what other insurances do we have, and how are they affected by COVID-19? Is there any scope to claim on an insurance policy?

We consider some of the most relevant below, and what to consider when renewing or notifying potential claims under these policies.

Questions for boards to ask management in the COVID-19 environment 
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Do we have insurance cover, or are we subject to a pandemic exclusion?

  • Is the organisation complying with policy requirements, such as notification of any potential claims?
  • Has the company reviewed cyber insurance cover to make sure it will respond to the increased risk of exposure in the current environment?
  • When are our policy renewals due and how will the crisis impact them? What forms of cover do we need in the future?
  • Can the organisation benefit the special arrangements put in place by insurers for small business?

This is just the start. Listed below are a range of Insurances with potential applicability to your business.

What next?
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Insurance is just one device in a company’s risk management toolkit. In performing their role with due diligence and skill, directors and officers should consider whether their risk mitigation strategies and protocols are working as expected, and if new laws affect the company’s operations.

A crisis plan is critical to a company’s operations. If they do not have one, a company should put together one as a top priority. 

Directors and officers should use their knowledge and insight, and engage external experts, to guide the company through this time and make appropriate disclosures to staff, customers, regulators and investors.

With this in mind, and the intimidating list of Insurances below, you may feel too overwhelmed to take action. Don’t give up, that’s where we can help …

How We Can Help?
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The MB+M Business Services team has extensive experience in helping clients to discern what types of insurances would apply to their business. We can also guide you through the process of creating a crisis response plan.

The team can also help with:

  • Giving you focus & direction,
  • Offering technical solutions for Gross Profit Improvements
  • Keeping you on track and accountable.

If you have questions, or looking for some help, then call MB+M on 03 5821 9177 and speak to an experienced Business Advisor.

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TYPES OF INSURANCE LIST:
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Business interruption
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Most businesses will hold industrial special risks (ISR) insurance or something similar, which covers first party property damage and consequent business interruption.

  • A requirement of most policies is physical damage, so not all policies provide cover for loss arising because of a pandemic. 
  • Some policies contain extensions covering business interruption arising from infectious diseases, government intervention, prevention of access, loss of attraction and interruption to suppliers or utilities.
  • Uncertainty also exists as to the proximate cause of lost profits; is it closure or simply lack of custom?

Organisations should engage early and regularly with their lawyers and insurers to understand their rights and understand what pragmatic solutions may be available as policy wording varies between products and providers.

Cyber
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COVID-19 has led to the world’s largest work from home experiment. 

  • This has led to greater risk of compromise to commercially sensitive or personal information and unauthorised access to systems.
  • It is important to review cyber insurance cover to ensure that it will properly respond to the increased risk of exposure in the current environment.
Trade credit
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  • It may be possible for companies to submit a claim under trade credit insurance policies if there is non-payment of debt. 
  • The trigger for these policies is insolvency, default or non-payment after a specified timeframe. 
  • Trade credit insurance may be useful for companies with exposure to default from small-to-medium-sized enterprises, who may not have sufficient cash reserves to ride out the economic downturn.
Worker’s compensation
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  • The relevant states and territory agencies operate Worker’s compensation insurance and may provide cover if a worker contracts COVID-19 in the course of their employment. 
  • Proving exposure whilst employed, and whether there has been a nexus between the duties performed and the contraction of the virus varies between each state and territory.
Event cancellation
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  • Event cancellation insurance policies purchased prior to COVID-19 becoming a ‘known event’ may cover some financial losses, depending on the policy. 
  • These policies are often complex but may still respond to some losses.
Travel insurance
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Travel insurance coverage will primarily depend on the policy’s level of cover, travel destination, and when the policy was purchased.

Most insurers have classified the outbreak as a ‘known event’ from around late January or early February onwards, others have implemented cut-off dates for COVID-19 related claims around this time (most policies contain a definition of when an event becomes ‘known’). Therefore COVID-19 is no longer a future event unknown for travel booked after that cut-off date, and/or policies purchased after that cut-off date and will exclude cover.

Policies taken out before the cut-off date may be used to recover medical expenses, cancellation costs or accommodation costs depending on the level of policy coverage.

Project insurances
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  • Directors of companies involved in construction projects should have a look at project specific insurances. 
  • Delay in start-up (DSU) insurance usually covers delays in completion and consequent delay in the business’s commencement. 
Renewals and notifications
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  • As renewal approaches, companies will need to should consider carefully what they should disclose in relation to COVID-19.  
  • Insurers will want to know of any potential or actual losses or claims, together with information about the ongoing health or viability of the business.
  • Insurers want to know whether the company is, or may become, insolvent. A qualified solvency declaration remains highly relevant to an insurer’s underwriting decision. 
What next?
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Insurance is just one device in a company’s risk management toolkit. In performing their role with due diligence and skill, directors and officers should consider whether their risk mitigation strategies and protocols are working as expected and whether new laws affect the company’s operations.

If they do not have one, they should put together a crisis response plan. Directors and officers should also consider whether COVID-19 will affect the company’s or a counterparty’s ability to perform their contracts.

As the situation remains fluid, boards may need to consider what position to take in relation to key contracts regarding the rights under those contracts. Directors and officers should use their knowledge and insight, and engage external experts, to guide the company through this time and make appropriate disclosures to staff, customers, regulators and investors.

How We Can Help?
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The MB+M Business Services team has extensive experience in helping clients to discern what types of insurances would apply to their business. We can also guide you through the process of creating a crisis response plan.

The team can also help with:

  • Giving you focus & direction
  • Offering technical solutions for Gross Profit Improvements
  • Keeping you on track and accountable.

If you have questions, or looking for some help, then call MB+M on 03 5821 9177 and speak to an experienced Business Advisor.

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Article Original Source: Australian Institute of Company Directors

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