After the Lockdown 2 has been announced in India, the IMF is now projecting a growth of 1.9% for the Indian economy due to the impact of COVID-19, growth is expected to rebound to 7.4% in fiscal 2022 as the impact of COVID-19 dissipates. The COVID Crisis is expected to make a huge dent on the World Economy and every business will get impacted.

Having examined the effects of the COVID -19 on the major Specialty Insurance Product Lines, Financial Lines, Casualty & Trade Credit, specifically to the Indian Scenario (while the same may be true globally too), I am sharing the same hereby:

FINANCIAL LINES POLICIES

Directors and Officers Liability Insurance

We are all aware of the current volatile stock market situation, we may expect sharp fall in share prices relating to COVID-19. Such share price fall could lead to class actions suits (which are now allowed in India too, after the Companies Act Amendment) alleging Corporate mismanagement, Failure to supervise, Breach of Fiduciary duty, or Cyber Security breach, which may trigger claims under directors and officers liability (D&O) insurance policy.

There may be lay offs or pay cuts too, which may lead to alleged discrimination or wrongful termination claims under EPLI coverage under the D&O policy.

There may be Industrywide Investigations under which the D&O may need to represent the company, this may trigger Regulatory Investigations Costs under the policy.

Current D&O policies do not contain specific exclusions for COVID-19, but most of the insurers and reinsurers are now putting the COVID -19/Pandemic exclusion under their policies going forward.

However, almost all D&O policies commonly have a BI/PD exclusion, or the bodily injury /property damage exclusion, either it would be For language or an Absolute exclusion, it is important for the Corporates and their Insurance Brokers to proactively look into the same. The bodily injury exclusion normally has a carve back for Defense Cost & Securities related claims.

Cyber Insurance

Due to COVID-19, most of the Business Worldwide is being driven through work-from-home. Obviously the firewalls and the strict security measures the companies have in Office are not possible while working from home or the employees personal laptop. This may lead to a huge Cyber Exposure for weaker fire walls leading to a Cyber Hacking or Cyber Attack and we may expect claims for alleged Privacy Breach, Notification Costs, Forensic Costs & Expenses, Cyber Extortion or even Conduit Liability.

Crime Insurance

As always in the difficult economic scenario, the Crime rates increase and the Corporate Crime is no different. One may reasonably expect the Crime Policy triggers for Fraudulent Computer Funds Transfer Fraud, Fake Presidents cover, Social Engineering, Forgery or Theft going forward.

Professional Indemnity

There may be lesser supervision and there may be Errors and Omissions Claims resulting from error, omission or negligence or even delay in providing the services.

However in most standard PI forms, Delay is an Exclusion, but some Insurers may cover  it as an extension with a sublimit for the same.

Employment Practices Liability Insurance (EPLI)

I have already discussed that there may be an increased number of EPLI claims under D&O policy, the D&O policy may have Entity EPLI coverage covering the Claims on the Entity too due to EPLI, however a more comprehensive and wider coverage is available under the EPLI policy for the same.

The claims may be expected by the employees alleging discrimination or wrongful termination due to the expected layoffs or pay cuts.

The EPLI policies also often contain bodily injury exclusions, however the defense costs are generally payable, unless there is an Absolute Exclusion, again it needs to be checked by the Insurance Broker whether the Language is For or Absolute.

CASUALTY LINES

Commercial General Liability

The Companies may be held liable under General Liability, if at their Office / Industrial premise someone contracts the virus and suffers a sickness (Bodily Injury) or Death due to the same.

The big exposure that may be envisaged is for the Hospitality Industry that if the guests at the Hotel contract the virus while they are staying at the Hotel, there may be claims on the Hotel for a Third Party Bodily Injury or Death.  

Generally, there is no exclusion for the disease under the CGL policy, but some policies carry Biological Agents exclusion and virus is excluded under the same, some Underwriters are also looking to consider it as a Pollutant too and may be excluded under Pollution Exclusion, however that is still a grey area. Again, mostly all the Insurers and Reinsurers are now putting a Pandemic exclusion going forward.

Workmen Compensation or Employers Liability

There may be an increased exposure for the employers, if the employees have contracted the disease while on the job either in office location or premises or while traveling for work, it may lead to claims under the WC policy and may be payable under the policy both whether it is the benefit under the absence of work and loss of wages under the testing or quarantine period or even later due to death.

Here it may be pertinent to note that the Indian Govt has already announced a compensation of Rs 50 Lacs for the death of the health workers, while treating and attending to the patients, however the WC policy may also pick up any further claims from the family of the deceased.

TRADE CREDIT INSURANCE

We all understand that the pandemic has badly affected all the economies of the World, therefore there is a high risk of Trade Credit receivables being delayed, also the Buyer companies may become Insolvent across the globe, so an increased number of claims may be expected under the Trade Credit Insurance policy.

The Trade Credit Insurers are already grappling with the issue and we are now seeing stricter underwriting and hardening of rates for this policy.

In general we may expect higher claims on a number of policies and going forward some form of Pandemic Exclusion would be expected on renewals or new policies, also most of the Underwriters globally anticipate a hardening of rates on Insurance Policies.

Disclaimer: This report represents authors views on the Insurance Polices available in the Indian Insurance Industry and is for General information purpose only. The author accept no Liability/ responsibility for losses that may arise from reliance on information contained in this report.  A legal advice should be taken from a qualified professional for specific information.