Possible Impact of Coronavirus Epidemic on the Insurance Industry

The coronavirus disease also referred to as COVID-19 was initially reported in Hubei Province, China on 31st December, 2019. 

By 30th January, a public health emergency of international concern was declared by the World Health Organization (WHO) as 50,000 cases were reported globally. The virus was confirmed to be zoonotic, meaning it can be transferred between animals and humans with primary transfer through close contact, coughing or sneezing.

As a means to curb the global spread of this virus, the Foreign and Commonwealth Office (FCO) advised against all travel to Hubei province and against all but essential travel to the rest of mainland China. Recently, the WHO sent special delegates to china to speak with scientists as a measure to study, understand and tackle this outbreak. Among these delegates is the Director General of the Nigerian Centre for Disease control NCDC, Mr.Chikwe Ihekweazu.

While everyone is concerned about public health, insurance companies will also have to deal with other unique and direct impact of this outbreak. These includes increase in travel claims, business interruption claims and loss of revenue.

In the light of the Foreign and Commonwealth Office (FCO) advice, there have been an increase in restricted entry imposed by certain countries and cancellation of flights by some international airlines. The possible outcome of this is a corresponding decline in the number of trips booked or taken and ultimately a reduction and even cancellation of travel insurance policies. 

Generally, the risks covered by travel Insurance policies are medical treatment, repatriation, trip cancellations and emergency medical treatment while abroad. However the type of cover can vary depending on the type of policy purchased and the company providing the cover.

Now, the question is, If hundreds or thousands of customers report claims based on the cover provided in their policy, can the Insurance companies cope with the sharp increase in number of travel claims?
According to Owolabi Salami, Executive Director, Allianz Nigeria, Insurance companies need to remind their clients either via SMS or Emails on their travel Insurance coverage; what is included and what is beyond scope. The communication should also highlight how they can claim for a refund where applicable. He also mentioned that insurers can take it a step further by sharing tips to customers on how to stay safe in the face of this epidemic.

Another possible claim increase that the industry might face is that of business interruption. In a situation where the business supply chain falls within countries with restricted access, the company will most likely suffer business interruption issues. For example, they might be denied access to a country which could mean failure to deliver materials essential for production. There might also be absence of key staff which might again interrupt usual business activities. It is therefore safe to assume that there will be a rise in claim in this regard since business continuity is at risk of interruption.

Apart from the impact of coronavirus on many lives, businesses whose supply chain falls within the countries of restricted access may suffer business discontinuity. Business discontinuity arising from denial of access, failure to deliver parts or materials essential for production or absence of staff crucial in the supply chain. Consequently, Insurers may witness a rise in claim for business continuity.

Another impact of the outbreak of this virus is the cancellation of sports, music or other social events. Countries are working towards reducing the influx of foreigners in their communities while local event organizers are weary about hosting people.

Similarly, citizens are beginning to get extra selective about where they go and events they attend. Last week, the Japanese sporting events were held without spectators. One game in particular featured one of Japan’s oldest and most popular team which usually attracts a crowd of people in a 55,000 seats capacity stadium in Tokyo. Unfortunately, no spectator showed up for this event.

Other large-scale events are being contained to hold within closed doors or locally and all of these translates to loss in travel insurance revenue for the insurers added Owolabi Salami, Executive Director, Allianz Nigeria Insurance Plc. 

It is therefore advisable for insurance companies to keep these in mind while creating strategies to mitigate possible effects of the coronavirus in Nigeria.