Insurance: the effects of Coronavirus

The management of Covid-19 has had a number of repercussions both on our practices and on our priorities. Businesses, for their part, have urgently reviewed their organisational charts and are now facing new challenges in terms of sustainability. Some are already wondering about their insurance coverage. Update on developments in the insurance sector due to the crisis.
Since March 16 and the Federal government’s brutal stoppage of all non-essential activities to limit the spread of the coronavirus and guarantee access to healthcare, our lives have seen considerable disruption. We turned to digital tools to maintain a semblance of normalcy. While teleworking, online shopping, video conferencing, distance learning and remote medicine have been on the rise for several years, they gained further momentum in just a few short weeks and became essential to the functioning of society during the crisis period.

The advantages and risks of digitisation

Digital technology has enabled companies to rethink their organisational structures and business models in order to continue their activities or to adapt them. New technologies have proven to be essential in maintaining relationships both with customers and between employees. The digital transition of companies has been accelerated to provide staff with fluid applications and functionalities specific to each profession.
However, the rush and the lack of a clear strategy in securing information and data could jeopardise business activities in the face of increasing cybercrime. The recent crisis has shown that the uncontrolled implementation of teleworking, for example, has considerably increased the risks.
Cyber insurance is more relevant than ever for businesses. Current policies do not specifically exclude the concept of the pandemic. Some of them, while they cover technical faults and malicious actions associated with computer systems, may include exclusions to ensure that appropriate cybersecurity measures are in place. In other words, if teleworking becomes ubiquitous, technical failures arising from this situation and resulting in total or partial unavailability of a computer network would not, a priori, be covered. “It would still be possible to make a claim under force majeure, the Covid-19 could be considered to be an unforeseeable, unstoppable event of very high intensity and beyond the control of a company. This would then need to be decided by a court, almost certainly on a case-by-case basis, says Sophie Di Meglio, Director of Special Risks at Swiss Risk & Care. Insurance coverage should obviously not prevent insured companies from continuing to apply proper prevention practices.”

Epidemic insurance is creating controversy

Having seen a drastic drop in business and even complete shutdowns, companies are hoping to obtain compensation through their insurance companies. While epidemic insurance can cover losses associated with performance and production due to closures ordered by the administration, few companies have it.
The catering trades, the main users of this type of insurance, often prefer to control the risks upstream and cover the damages themselves in the event of a claim. If, however, epidemic insurance has been taken out, some insurers still refused to pay compensation as soon as the WHO qualified Covid-19 as a pandemic. Controversy surrounding this subject is growing in the public arena and negatively affecting the entire insurance sector. A careful reading of the general insurance conditions becomes essential, as is a broker’s assistance when they are subject to interpretation.

Is pandemic coverage required?

Insurance companies reiterate the need to innovate and are seriously looking at pandemic insurance, according to a study by Mazars and the Institute of Risk & Insurance at the ZHAW School of Management and Law, published last April. “Possible approaches could include pools, capital market solutions and other risk transfer instruments.”
In the following interview, Yvan Roux, Director of the Enterprise Business Unit looks at the role of insurance and questions the relevance of pandemic coverage.
Crisis periods, in many ways, reveal the strengths and weaknesses of an organisation or industry. A critical and cold analysis of the management of Covid-19 will help us to find adequate responses to the needs of businesses.

Improved health coverage

Health, and access to healthcare in particular, is increasingly a cause for concern. Corollary effect: understanding your health insurance coverage and ensuring that it will meet your needs in the event of an incident. “Up until now, high premiums have caused many Swiss people to postpone additional insurance due to good health, even if they are aware of the importance of having good coverage. From now on, the primary concerns are the quality of services and benefits offered by insurers, says Stéphane Buff, Director of Individual Solutions for Health Insurance (FMSI) at Swiss Risk & Care. With both group and individual insurance policies, we provide support to companies by answering questions posed by employees.”
It should be noted that the services associated with the pandemic are covered by compulsory health insurance (LAMal), which reimburses laboratory costs, medical costs and hospitalisation costs, after deduction of the excess and the shared portion. In certain cases, care is also provided by the Confederation.

HR outsourcing, an asset during a crisis

The past few months have demonstrated the benefits of outsourcing payroll and HR administration tasks. Our clients have informed us that these services have helped them continue business, particularly by paying salaries, they have also been useful in managing the crisis itself. Social law, Reduction of working hours (RWH), Allowance for loss of earnings (APG): certain administrative procedures have been altered and new measures have been put in place. Many of these changes have raised questions within HR departments, and they have relied on us to answer questions and support them.

Pandemic insurance: the panacea?

As the world races to find a vaccine against Covid-19, the Swiss insurance community is looking at pandemic coverage that would compensate businesses for future stoppages in their business. While the idea is attractive, is it relevant and achievable? The opinion of Yvan Roux, Corporate Clients Director of Swiss Risk & Care.

Insurers distinguish between epidemics and pandemics. Why?

An epidemics is a risk that insurance companies, and in particular their actuaries, can quantify. It is limited to a particular area or population. Thanks to the premium income, insurers can provide cover to a small number of clients. In the case of a pandemic, almost all of the population is affected. For the insurer, this means almost 100% of the risk is realised. Its reserves are largely insufficient. We must remember that the purpose of insurance is to pool risks, to consolidate funds, in order to be able to cover infrequent claims.

This leads to the question as to whether pandemic insurance is viable?

Yes, using a pooling system, i.e. by creating and pooling reserves. In short, each individual contributes to the fund, which is then used to compensate those affected in the future. In Switzerland, this solution already exists for two types of risks: natural damage and earthquakes. Different methods are used: either the pool covers all compensation, or the insurance companies pay a certain amount and the pool covers the rest.

Are you in favour of this type of solution?

In these difficult times for businesses and the self-employed, we are sure that pandemic coverage will be desired and expected, which is understandable. But pooling involves the creation of a company, the appointment of a governing body, a control structure and administrative, technical and financial management teams. Furthermore, questions then arise as to the method of funding it. Whether it’s a premium on insurance products, an increase in VAT or another method, we will all have to contribute at an appropriate level. For my part, it looks a lot like a tax upstream rather than downstream of the crisis, to which recurrent management costs must be added. At the same time, this tax will then generate expectations in terms of compensation, some of which will be unreasonable. The current solution proposed by the Federal Council, using coherent and targeted financial aid, seems to me more logical, even if it could still be improved. We will see if the present measures are sufficient in hindsight.
Yvan Roux - Swiss Risk & Care
With over 25 years of experience in the insurance, provident and HR services fields at the Swiss Risk & Care Group and other insurance companies, Yvan Roux is responsible for all services dedicated to businesses.