The Ebola outbreak has now claimed more than 5000 lives. So how are insurers reacting to the ongoing threat – and what would infection on European soil mean for the industry?
With the estimated death toll from the current Ebola virus outbreak reaching 5160 by 12 November 2014 and the affected countries finding it tough to stem the spread of the disease, sympathies naturally lie with the West African nations struggling to fight this deadly scourge on their populations.
But while the grave health implications for those individually affected are at the forefront of people’s minds, companies have also had to grapple with the risks the near‑pandemic poses to their businesses.
While the disease has, for the most part, remained contained within West Africa, the case of a Spanish nurse who apparently contracted the disease after treating two returning missionaries last month was a sobering reminder that the possibility of an outbreak on European shores is not beyond the realms of possibility.
But even if other incidences of infected persons do not occur in mainland Europe, the disease still has the potential to cause serious problems for UK businesses due to complex global supply chains. “No company operates in isolation. Most companies also have locations in Africa, and many will be reliant on a complex chain. It’s not just the direct suppliers, but also the suppliers’ suppliers,” says Caroline Woolley, EMEA property practice leader at Marsh.
Liberia, Sierra Leone and Guinea – the three countries that have borne the brunt of the recent outbreak – supply foodstuffs such as cocoa, as well as other manufactured products, which could all be affected. And while there is insurance that can be used to protect against business interruption, finding a policy that will pay out in the event of supply chain difficulties can be tricky, Woolley explains.
While there are specialist policies that can cover the complex supply chain risk, she continues, this is far from standard. “You’ve got your traditional property damage and BI policy and, from that perspective, you can get extension clauses for infectious disease. That will only cover you for your own locations, though.”
If a case of Ebola were identified in the UK, one of the major threats to businesses would be a mandatory closure order and its subsequent financial impact, says Mark Sleet, professional risks broker at Miller. “If a business is subject to a mandatory closure order it will have continuing business expenses such as salaries, rent and utilities,” he says – and all without the financial support of business income.
Insurers are starting to wake up to the needs of businesses in this area and some have launched bespoke cover to respond to such concerns. Miller itself launched two products last month: quarantine insurance for shipowners and regulatory loss-of-revenue insurance.
The former indemnifies clients for loss of earnings along with additional expenses and damage to or loss of vessel or cargo resulting directly or indirectly from the following: quarantine, injury, sickness, death or infestation. The latter covers continuing business expenses following the mandatory closure of a facility by a regulatory body.
But, according to Woolley, loss scenario testing is vital to ensure policies are suited to the individual needs of the business. “The BI cover most people have is triggered by property damage, and infectious diseases [are not] property damage, so most traditional policies do not cover that – although you can get non‑damage denial of access as well,” she says.
“Usually [with infectious disease extensions] you’re covered for increased costs and the interruption to your loss of profit as a result of a closure of your premises by a civil or public authority. If there is an outbreak and restrictions are imposed by a civil or public authority, that’s when the cover triggers.”
While BI is one major threat with Ebola, liability lines – both employers’ and public – could also be hit hard. “The potential for employers’ liability implications arises if an individual travels to an infected area and then brings the disease back into the workplace,” according to Chris Dee, head of casualty insurance, Allianz Commercial.
Despite the number of unknowns, employers can take proactive steps to reduce the possibility of a liability issue arising, Dee says. “Businesses need to assess the risk associated with travel to and from an infected country. If deemed necessary, they need to consider the precautions they will be taking for that individual during the trip and, importantly, the precautions for that individual’s ongoing health and other employees who may have contact with that traveller.”
The cases of the nurse in Spain and another nurse in Dallas, Texas, (both of whom have since been declared Ebola-free) have highlighted the complex web of different liabilities that could be invoked. “Insurers and insureds need to prepare for any claim brought against them. What we’ve seen from the situation with the two nurses is that even quite isolated, low‑key events can trigger claims,” says Peter Rudd‑Clarke, senior associate at law firm Reynolds Porter Chamberlain.
“The main parties likely [to face claims] are hospitals, health trusts and manufacturers of equipment used to protect against Ebola. Where there’s such as catalogue of error – as in the case of the Spanish nurse – claims could be brought against any one of these parties.”
While a situation where either staff members or patients contract Ebola in a hospital setting is almost certain to result in litigation, there are still steps parties can take to minimise their exposure, Rudd‑Clarke says. “For hospitals, litigation could be brought by patients or members of staff if [the hospitals] are seen to have breached their duty of care. If they fail to provide proper training to staff or do not have proper protocols in place, they could be exposed to claims.
“If manufacturers supplied equipment to the hospital and it was working but then failed, you’d have to ask why. Is the manufacturer providing a manual with the equipment and is it robust and up to date? Are any risks – such as the fact that the material may degrade after a certain amount of time – properly explained?”
Rudd‑Clarke adds that any litigation is likely to focus on the standard of care expected in the particular situation – something that can be very fluid and could be contested.
“If the situation worsens and things go wrong, insurers may try to argue that you can’t apply the standard of a normal, benign situation because these are exceptional circumstances,” he says.
While businesses look to assess their risk and ensure they have appropriate cover in place, insurers need to be mindful of their own exposure. Risk aggregation leaving them facing claims in multiple parts of their portfolio is a major concern. But there are exclusions designed to minimise this, according to Woolley.
“Insurers have potential risk accumulation and that’s when you start to get exclusions,” she says. “The supply chain policies for non‑damage BI cover will cover infectious disease, but they often exclude pandemics. That’s because when deaths reach a certain level they have accumulation of risk from other parts of the insurance industry from a liability perspective.”
As insurers look to cope with an evolving situation, models can play a key role, according to Nita Madhav, senior scientist in research and modelling group at AIR Worldwide. “There is a long-standing tradition in epidemiology of compartmental models that estimate which people will be getting sick at any one time. We have taken that type of modelling and extended it to include a component that allows us to estimate the movement of people via air travel and other forms of transportation from place to place, not just the spread of the disease from person to person.”
There are a number of different ways these kinds of models can aid insurers, says AIR Worldwide life modelling manager Doug Fullam. “Insurance clients are trying to get ahead of what’s going on and understand the implications for their portfolio.
“In terms of BI [policies], insurers would want to understand how many people in a certain area are likely to get sick, because that’s going to influence the number of workers who are likely to be able to make it to their jobs. [It would also help insurers] see what the main trade goods of the affected countries are.”
The high-profile nature of the current outbreak has seen a spike in interest in modelling solutions, Fullam adds. “It’s in the news every day so there’s been an uptick across the board from many different industries. A lot of people are playing catch‑up, trying to understand how they can model this sort of risk.”
Despite Ebola’s high mortality rate, research from the Cambridge Centre for Risk Studies suggests the greatest disruption in developed economies is actually likely to come from fear of the disease, rather than the sickness and death it causes.
Dr Scott Kelly, senior research associate in the Cambridge Centre for Risk Studies says: “In countries with advanced medical services, new cases of Ebola will be swiftly contained using a combination of treatments and isolation processes. But the news of individual cases will provoke economic disruption and fear in the general population, both of which will be disproportionate to the actual risks.
“We are calling the economic impacts that result from irrational behaviour a ‘fear multiplier effect’. The statistics show the actual probability of catching the illness is much lower than other risks people routinely encounter on a daily basis.”
He adds: “If the fear multiplier effect is sufficiently large, the impact on the insurance industry could be severe. In the event the disease spreads across the globe, life and health cover will be important lines to monitor. However, our models suggest low economic activity could potentially cause losses to trade credit lines of business and liability lines associated with management responses to business disruption. Of particular concern are investment assets of insurance companies, as markets could lose value with outbreaks.”
Kelly concludes: “The threat of diseases in distant populations may seem to be of little relevance, but when interconnectivity and humans’ innate fear factor are properly considered, these outbreaks pose a genuine risk to the economy. All businesses need to have risk management processes in place for events such as this.”