Business (un)interrupted in the time of Covid-19

Business continuity reflects the capability of a company to plan for and respond to incidents. Steyn McDowall, executive director of business and specialist insurance at Indwe Risk Services, says being proactive around risk management strategies is not a luxury but a necessity.

“A business continuity process or plan is activated when an event that has the potential to interrupt standard operations occurs. The Covid-19 virus has made this a reality for every organisation irrespective of size or industry sector.

“It’s too late for companies to try and buy insurance cover for the current outbreak,” says McDowall.

“Some companies may have property damage and business interruption policies, but very few of these policies would cover the effect of the business interruption caused by Covid-19.”

Alicia Goosen, chief broking officer at Aon South Africa, says insurers are likely to argue that the introduction of a virus does not constitute direct physical loss or damage to insured property, nor is it an insured peril.

“If the physical damage trigger is not met, the exclusion will also apply to most business interruption claims. There are, however, some select policies for certain industries that will address losses caused by infectious and contagious diseases,” she says.

Specified coverage

This specific coverage can be referred to in clauses titled “loss of attraction”, “communicable diseases”, “special perils business interruption” or “infections and contagious diseases”.

Goosen warns that such coverage is almost always subject to a low sub-limit – and is often aggregated as well. Although the extension grants cover for illness sustained by any person as a result of food or drink poisoning and any human infectious or contagious diseases, it also contains a host of specific virus exclusions (including but not limited to Aids, Sars coronavirus, Influenza A and any other virus).

McDowall says Indwe is currently engaging with local and global insurers to explore potential pockets of cover within various forms of policy.

“However, we are currently of the opinion that Covid-19 is not only uninsured but is uninsurable.

“This is a broad statement, but for insurers to price a risk they must be able to quantify the potential loss. With countries in Europe now in lockdown, it is clear the consequential losses are almost unquantifiable and certainly beyond the capacity of the insurance industry.

“The focus must be on risk management as opposed to insurance,” he adds.

Employee leave

Law firm Webber Wentzel says there are three potential scenarios, each with a different impact when it comes to employee leave:

1. Employer-imposed cautionary quarantine – An employer can arrange for staff to work from home. If an employee is unable to do this, the company could grant them special paid leave since this has been the company’s choice, or take the period out of the employees’ annual leave.
2. Employee self-quarantine – Employees may choose to self-quarantine, and if able to work from home, be paid in full. However, if the person is unable to carry out their job function from home, this time may be deducted from their annual leave. If they have no annual leave due, they would then take unpaid leave.
3. Government-imposed quarantine – This could be construed as a force majeure event or a circumstance in which an employer is unable to fulfil its obligations and is then entitled to implement a ‘no work, no pay’ principle.

McDowall says that while black swan events are few and far between, a business continuity plan allows a worst-case scenario modelling. This should ensure that all impacts arising from an event are considered, regardless of the likelihood of an occurrence.

Referring to President Cyril Ramaphosa’s declaration of a national disaster on Sunday, he adds: “Whether or not enough South African companies have monitored developments around Covid-19 prior to President Ramaphosa’s announcement will only be seen during the next few days and weeks ahead.”

Read: Covid-19: Averting a national disaster