By Dr José Symenouh.
Man has always thought and built solutions to deal with the risks of loss and damage to which he, his heritage, his activity and himself are exposed. Among these solutions is the insurance mechanism. In reality, the insurer’s profession was born from the will of men to lighten the burden of the suffering they face, when they are affected by the occurrence of a risk emanating from their daily activities or their living environment. Insurance is a risk transfer mechanism that weighs on one individual to another, and which is part of a contractual and economic relationship. In this relationship, two parties intervene, the underwriter of the insurance contract who pays an insurance premium (cost of the insurance cover purchased) and the insurer, the company which intervenes for the payment or reimbursement of losses or damage suffered by the former. In the insurance policies, the obligations of these two parties are defined, the conditions under which the guarantees are exercised and especially the events covered by the insurer and the damages and losses covered; indications are also made to instruct on the various excluded events.
At this time of the “covid-19” coronavirus pandemic, we are challenged every day by our customers on the implementation of their insurance guarantee. We easily understand the concern of each other on the issue. Also, between these lines, we offer some benchmarks to understand the insurance of a large-scale risk such as the risk of contamination with covid-19.
Is damage or loss related to covid -19 contamination insurable?
It is true that in insurance practice, damage and losses linked to certain events are systematically excluded from the coverage of insurers, like smuggling operations, illicit traffic, insurance on the head of a minor under the age of 12 and even the financial consequences of criminal responsibility. Article 6 of the Civil Code provides for this purpose that “one cannot derogate, by particular conventions, from the laws which concern public order and good customs”. It is therefore clear that it is not accepted to mention that the insurance contract is understood to be an agreement between two parties who agree on the terms of their agreement to therefore ensure any event. A good reading of this article 6 prompts us to say that the damage or losses linked to the risk of contamination with covid-19 can be insured since the coverage of this risk is not struck by a legal exclusion prohibiting coverage of this damage by an insurer.
An insurer can therefore, in the light of a good knowledge of the risk of contamination with covid-19, offer its customers the subscription under well-designed conditions, a guarantee of loss or damage linked to covid-19; but as long as he has a good knowledge of the risk to assess sufficiently, the probability of realization of this risk (if it is not very recurrent) and the extent of the damage to its realization (if the cost damage does not exceed its capabilities). In any case, the risk against which we are insured must be located in the future. For an event that has already taken place, there is no longer any risk. It is therefore clear that, in the same way, an already infected individual cannot take out insurance on his head covering the coverage of costs related to his illness after his contamination. Likewise, a company can only hope to cover its losses linked to covid-19 if its contract provided for the subscription before the outbreak of the pandemic.
Finally, it is also the rule that the insurable risk must interest a sufficiently large number of policyholders so that the pooling can function properly. However, this risk cannot be systemic in such a way that it impacts as many people as possible.
It is this last criterion which is feared in terms of damage and losses linked to the contamination of populations during a pandemic which justifies that a good number of insurers exclude from general conditions of their policy events of health crisis such as pandemic and other like, nuclear explosions, natural disasters…. These exclusions may therefore be redeemed to cover the event. The main thing is to be able to request it from the insurer and pay the price (additional premium or premium).
Losses and damage related to covid-19, insurance to be taken out by individuals
At the individual level, the losses and damages associated with the covid 19 pandemic can be enormous. Most of these are lost income due to the impact of the disease on the economic situation or incapacity for work and the additional costs generated by measures to prevent the disease or the medical costs of treatment.
These losses of income can be recorded before the individual is contaminated and therefore increase due to his sick leave after contamination and of course affect the people in his charge or who depend on his support. Loss of income can be covered through a job loss or income loss insurance contract.
As a general rule, health insurance covers the costs incurred by insured persons infected in the context of a pandemic unless otherwise provided for in the exclusions of the contract. These expenses cover consultation costs, medical imagery, biology, hospitalization, pharmacy and even medical evacuation costs. They are often not extended to the screening test.
Fortunately, in the context of this health crisis, the costs linked to the medical treatment of the disease are fully covered by the public authorities, provided that the treatment takes place in a health care establishment retained by the State.
If the individual has travel insurance in which the conditions of membership do not exclude the “pandemic” event, the assistance under this policy may cover his medical expenses abroad when he is infected locally, medical repatriation as well as other costs such as the repatriation of the body in the event of death. Everything therefore depends on the insurance conditions of the assistance provider whose insurer markets travel insurance.
It should also be noted that the risk of death of an individual is covered by all-cause death insurance policies. But these contracts generally provide for the exclusion of deaths resulting from epidemics, pandemics or even natural disasters recognized as such by the WHO or the public authorities; like the case of covid-19. Fortunately, since the beginning of the health crisis, some insurers have announced their waiver of this exclusion for customers already in their wallets (highly commercial gesture to be welcomed).
It should be remembered that apart from the loss of income and physical damage linked to covid-19, the property of individuals remains always exposed to the usual risks for which property damage and liability insurance is taken out.
Losses and damage related to covid-19, insurance to be taken out by companies, organizations, institutions or organized groups
The loss of a contaminated key man (deceased or incapacitated for work) can be covered by a company through key person insurance. This therefore assumes that the date of subscription of this contract is prior to the triggering of covid-19 and that this key person for the company is named in the contract.
As with individuals, heavy losses resulting from the negative impact of the disease on the economy and the non-performance of contracts due to border closure measures, blocking of geographic areas, difficulties in moving people and routing of goods or containment of workers are inflicted on companies.
It should be noted that through the operating loss guarantees of multi-risk damage or professional insurance policies, insurers generally compensate for the loss of gross margin resulting from a stop or the slowdown in activity following a guaranteed event in the contract causing damage to the structure, in particular fire, electrical damage, water damage, machine breakdowns… what about covid-19? It is therefore necessary to cover losses in turnover related to covid-19 that the company has therefore anticipated the subscription to a special operating loss guarantee following a health crisis or pandemic to be compensated.
For the specific case of goods conveyed (faculties) by any means, land, air and sea, difficulties in routing to destinations with implications of delay in delivery, precautionary measures taken in terms of transhipment, shipping activities handling for unloading or unloading, for loading or provisioning at intermediate storage points, or packaging during waiting periods are identified as situations generating huge losses for the owners of the goods. They are added to the losses linked to road damage and traffic jams. It will therefore be necessary for the owner of the goods, depending on the mode of transport adopted for the carriage of goods, to take out an insurance policy on land, air or sea. And since these policies generally exclude the “pandemic” event from the events triggering the insurer’s guarantee, a request to redeem this exclusion should be made so that the various losses mentioned, are reimbursed by the insurer. The faculty insurance coverage at this time may extend, if subscribed, to contractual penalties due to a delay in delivery, especially for goods under the sales or consumption deadline or in special packaging, and also travel expenses for transportation to another destination in the event of border closures or intermediate storage and related activities.
It must also be recognized that, as a general rule, force majeure is retained as a situation which may exonerate the performance of a contractual obligation. Article 1218 of the Civil Code provides for this purpose that “there is force majeure in contractual matters when an event beyond the control of the debtor, which could not have been reasonably foreseen at the conclusion of the contract and whose effects cannot to be avoided by appropriate measures, prevents the performance of its obligation by the debtor ”. We thus recognize three main characteristics of force majeure which is therefore an external, unpredictable and inevitable event to which the covid-19 undeniably responds. Companies can therefore take shelter behind this provision to protect themselves against claims for damages arising from the breach of their contract provided that the conditions are suitable.
In this context, the purchase of a business manager RC insurance policy is still highly recommended to cover damage resulting from the poor performance of contractual obligations and damage suffered by third parties in the operations of the structure or caused to them by the attendants during the execution of their mission. This policy can also be useful, if the civil liability of the structure were to be sought for failure to set up working conditions preserving the health and occupational disease of its employees. As such, the inexcusable fault guarantee could cover employee claims provided that the occupational disease is established.
It must be admitted that this health crisis has awakened collective consciousness about the guarantee hole in almost all of the policies marketed by insurers linked to the risk of pandemic contamination. Today, all the interest of the insured is focused on this event, solutions are being developed. According to Atlas magazine, AXA CEO Thomas Buberl is already proposing the creation of a pandemic insurance plan. This mutualized mechanism will be inspired by that which has been put in place for natural disasters and in this regime, the State could participate in 50% and private insurers also in 50%.
Losses and damage related to covid-19, the mechanisms to be put in place by the State
In order to support populations and economic activity, since the outbreak of the health crisis, all countries in the world without exception, have taken strong measures significantly impacting the financial resources available to the State to assume its sovereign tasks. For the most part, these are losses or drop in revenue resulting from the facilities and accompanying measures granted (taxation, taxes, etc.) to individuals and companies to support them, the decline in productivity and the expenses incurred in response measures against illness or taking charge of the quarantine, screening and patient care system.
And since these moments of a pandemic are periods of great expectation and solicitation from the public authorities, there are also many mechanisms at state level to finance the losses linked to the occurrence of large-scale risk which can be akin to covid -19. The most common are the establishment of special funds or the system of issuing bonds linked to large-scale risk generally called derivatives.
Like the funds for natural disasters (Cat Nat), the special funds system operates on the basis of the collection from premium insurers of a “pandemic” guarantee marketed in their property damage policies. The funds made up through this collection and managed by an independent body over a long period allow loss and damage to be covered by the insured at the onset of a pandemic under well-defined conditions, relieving the public authorities here.
Regarding the pandemic bond issuance system, it consists of setting up private or investor subscriptions at all levels (or States if this is an international solution) pandemic bonds for a period, giving rise to interest service (coupons) each year for the holder until maturity (on the bond’s maturity date) in addition to the repayment of the initial stake if no pandemic is triggered . The occurrence of a possible pandemic before the maturity of the bond signals the cessation of interest payments and the loss in favor of the issuer of the investor’s initial investment in the purchase of the bond. It is therefore a system of raising risk funds from individuals and investors (and therefore remunerated at an interest rate) in order to finance loss and damage in the event of a pandemic.
These systems are very effective in supporting public authorities to meet their prerogatives and carry out actions as part of the response to a pandemic.
Ultimately, to conclude and answer our question, is covid-19 insurable? A priori yes. You have to have it in the contract even if some contracts say nothing about it. If the pandemic event is excluded from the general policy conditions, the exclusion must be bought back and the premium paid. There are even state-level mechanisms. Everything suggests that after this unprecedented health crisis, straining the entire social and economic ecosystem, insurers, the private sector and the public authorities will agree to define a compensation system for the height of this type of event.
In any event, this pandemic must allow Insurers advisers to fully play their role alongside insurance consumers and ask Insurers to review the content and outlines of their insurance policies for better coverage of the insured and beneficiaries insurance contract.