The COVID-19 Lockdown and Business Insurance Exclusions
How has Lockdown Impacted South African Businesses?
Many South African companies and businesses have been thrust into uncertainty. Government restrictions during the lockdown period have limited the ability for corporations to execute functions that stabilise their bottom line. Some companies have not been able to run at all since the lockdown came into effect.
We are thankful for the government’s efforts in relieving the financial pressure of the COVID-19 crisis for small-to-medium-sized enterprises. Yet, even with the government’s intervention, our economy has taken a significant knock. Business owners are looking for avenues to mitigate risks that have been realised overnight.
Before the COVID-19 pandemic, business insurance may have seemed, to some, an over-expenditure and luxury. Maybe business interruption cover seemed like a frivolous spend, but since February 2020, thousands of owners have become aware of their need for insurance. If you already own a business insurance policy, does it cover the pandemic? And if not, how can you best cover this risk in the future?
Does My Business Insurance Cover Interruptions Due to COVID-19?
Right now, most insurance policies in South Africa do not offer cover for business closure due to COVID-19 or cover for pandemics. You won’t necessarily find pandemics under a list of exclusions, but getting cover for a pandemic is not easy. The cost of such a risk is hard to calculate, and therefore hard to cover.
While some insurance providers have begun to offer their clients personal insurance options for the pandemic, business insurance isn’t the same. Policies may mention pandemics as an exclusion, or may not mention pandemics at all.
What is an Insurance Exclusion?
An exclusion is an event that your insurance policy does not offer you cover for. The event is excluded from your cover, so if it occurs, your claim will not be paid out. A great example of a typical exclusion would be the exclusion of suicide in life insurance cover.
Exclusions are different from policy to policy. Be sure to read the fine print before you purchase a policy. You can discuss exclusions with the insurance provider beforehand. Insurance providers usually detail exclusions in your insurance policy documents to make clear which risks they are unwilling to insure.
Why Would COVID-19 be an Exclusion on My Business Interruption Policy?
Most insurers in South Africa probably view the pandemic as an exclusion because the introduction of the virus isn’t considered a direct cause of damage or physical loss to the insured property. A physical damage trigger must be met for the event to be included in your business interruption cover.
It is often not included as an insured event either, because the scope of cover is difficult to estimate. Insurers need to quantify the possible loss. When we look at the massive cost of the pandemic in the world so far, it becomes clear that coverage for this risk is beyond the capacity of insurance providers in South Africa. Some professionals are of the opinion that COVID-19 is not only uninsured, but also uninsurable.
Is There a Business Insurance Policy in South Africa that Covers COVID-19?
Most business policies exclude pandemics, but there are specific insurance options that can offer businesses a measure of protection against risks related to COVID-19. Risks that can be covered by special business insurance policies could include communicable diseases, loss of attraction, special perils business interruption, or infections and contagious diseases. If your policy currently includes one of these events as insured events, you may be able to claim.
If you are looking to purchase insurance that covers these risks, you can compare business insurance quotes online. Be aware that the cover offered for the above events is usually subject to a low sub-limit and aggregated. Sometimes even cover for infections and contagious disease excludes cover for viruses or specific viral strains.
How to find out if Your Business Insurance Policy Covers Pandemics
The easiest way to find out what sort of cover your insurance provider offers is to read through the policy or give your provider a call. Look at the exclusions section, and search for the above insured events in the policy document. If you choose to call the insurance provider, be sure to make your queries clear and easy to understand.
What to do if Pandemics are an Exclusion on Your Business Insurance Plan
While it is too late to insure your business for risks relating to this pandemic if you do not have cover, there are measures you can take to lower the impact on your company’s continuity. In the absence of business interruption cover for the pandemic, companies can look to other means of risk mitigation.
First, it is important to get cover for any future situations. You can speak to your current business insurance providers about whether adjustments or additions to your policy are possible. Companies can also manage employee leave to lower the impact of the pandemic.
Employees may be asked to take their annual leave during this time. Companies may also be unable to fulfil their obligations, resulting in the need for a no-work, no-pay situation. According to the South African Department of Employment and Labour, both options are legal and within the rights of the company.
DISCLAIMER: The information provided in this article is meant for informational purposes only and should not be construed as legal, medical, or financial advice. Facts stated in this article are correct at the time it was published.
Sources: Moneyweb; SAIA; fin24; Department of Employment and Labour;