Why Companies Can’t Claim Insurance For Covid-19 Losses

Here’s what existing business interruption policies are and whey they cover...

People wearing handkerchiefs to cover their mouth and nose sit outside shuttered stores in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)
People wearing handkerchiefs to cover their mouth and nose sit outside shuttered stores in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

India’s lockdown to contain the new coronavirus outbreak has brought businesses across the nation to a halt, causing losses. While companies do buy insurance to protect themselves against business interruption, according to insurers such policies don’t cover a pandemic like Covid-19.

The hospitality and travel sectors are among the worst affected industries. While the central bank and the government have taken a host of measures to boost liquidity, provide moratorium on loans and ease compliance, these are like to only aid a recovery and not help recover loss.

Companies want the insurance regulator to extend the scope of business interruption insurance to the disruption caused by the new coronavirus outbreak. “The government should speak to IRDA to allow loss of profit from Covid-19 to be covered,” Sanjay Sethi, managing director and chief executive officer at Chalet Hotels Ltd., told BloombergQuint in an interview. “It’s critical that it should be allowed.”

Here’s what existing business interruption policies are and what they cover:

What Is Business Interruption Insurance

Such policies typically cover loss of profit for the period a business is disrupted as well as fixed expenses incurred during that period, said Subramanyam Brahmajosyula, head, underwriting and reinsurance at SBI General Insurance.

But they are not as popular as the basic fire policies covering property damage, he said. “We see large and mid-sized corporates taking these [business interruption] policies although they are far less prevalent among small and medium enterprises.”

According to Sanjay Datta, chief-underwriting, reinsurance and claims at ICICI Lombard General Insurance Co. Ltd., business interruption policies are not widely sold in India. “Normal physical damage policies, covering perils like fire and catastrophic or act of god perils like flood and earthquakes, are sold widely.”

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What Does A Business Interruption Policy Cover

Business interruption is dependent on property coverage, and is not sold standalone, said Datta. “So if a claim is triggered on property damage, only then is business interruption cover triggered.”

Brahmajosyula said such a cover can be taken as a separate policy only in conjunction with fire insurance. Or these can be taken as part of a package in products such as industrial all-risk insurance which covers both property damage and business interruption, he said.

Why Covid-19 Is Not Covered

Both Datta and Brahmajosyula said business interruption plans can’t be triggered by the new coronavirus pandemic.

“For the business interruption cover to trigger, it is necessary for the property insured to suffer physical damage due to a covered peril such as fire, flood or earthquake,” Brahmajosyula said. “Hence, such policies would not cover loss caused due to epidemics such as coronavirus.”

Datta said these policies don’t cover any non-physical damage or resulting business interruption from a pandemic. “And business interruption losses arising out of shutdown due to the pandemic cannot be reimbursed as no contributions have been made by way of premium for paying such a loss.”