The Covid-19 crisis represents a significant challenge for the insurance sector worldwide. The effects will be felt, and an increase of claims may be expected, across most types of insurance: especially health, travel and tourism, business interruption, trade credit and cyber risks.
This article looks briefly at the measures taken so far by the Spanish government, and analyses the impact that Covid-19 may have on certain insurance covers.
General measures taken by the Spanish government which will affect insurance
In Spain, the government has been forced to take unprecedented measures to stop the virus from spreading across the country.
The most relevant measures in relation to the insurance sector are listed below:
Insurance services are included in Annex I of the latest Royal Decree Law, therefore all workers from insurance companies, brokers, surveyors, etc are permitted to continue to go to their offices. Nevertheless, most companies in the Spanish insurance sector have instructed their employees to work from home, having implemented the technology to allow remote access in advance.
In relation to legal proceedings, it should be highlighted that limitation periods (time bars), hearings and meetings have been suspended for the duration of the state of alarm, including those before judicial courts and the General Directorate of Insurance and Pension Funds (although some exceptions apply).
In terms of insurance management, the boards of directors of companies whose securities are admitted to trade on a regulated market in the European Union can hold virtual meetings and vote remotely, regardless of whether this is accounted for in their company bylaws. Similarly, governing bodies of other companies can hold meetings in writing without convening a session.
Lastly, the period for presenting the 2019 annual accounts of companies - including insurance companies - has been extended. These will need to be presented within three months following the termination of the state of alarm and approved within six months (ten months in the case of companies whose securities are admitted to trade on a regulated market in the European Union).
Issues for specific insurance categories
Insurance companies could face reputational consequences regarding policy exclusions in health insurance, as most policies exclude cover when illnesses become epidemics and pandemics. However, considering that cover has generally been granted in cases of common flu – which is usually recognised as an epidemic – Spanish insurers have commonly agreed to cover the medical expenses related to Covid-19.
The Spanish government has ordered the closure of all hotels. This will have present and future consequences, both for companies and those individuals using their services.
Service providers (for example hotels, tour operators, restaurants, leisure companies, etc) are currently not able to function and are further threatened by the uncertainty of not knowing how consumers will behave in the future, even after the state of alarm ends. This situation will eventually lead to the activation of the business interruption policies, but only in cases where pandemics are not excluded.
On the other hand, some individuals have had to cancel their trips or even pay for medical treatment if they became infected abroad and, therefore, have also suffered an economic loss. However, similarly to health insurance companies, travel insurance companies are currently covering health expenses abroad in the event of contracting Covid-19.
Industries are now reviewing their insurance policies to find cover for lockdown, unexpected costs and delayed product supply. Historically, business interruption insurance has required physical damage to property, but it has evolved to include additional coverage. However, this is usually expensive and not many insurance companies provide this type of cover because of the difficulty in quantifying potential losses beforehand - the economic consequences of a global pandemic are unpredictable and very difficult to calculate and, therefore, must be assessed on a case by case basis (ie depending on the business sector, supply chain, etc).
Trade credit insurance operates when the cause of the loss is the default or the lack of payment and normally does not consider the potential underlying cause of the loss.
This type of insurance is likely to suffer a domino effect and will receive most of the claims as many companies will go out of business due to disruptions in supply chains.
This branch of insurance will no doubt play an important role in the upcoming months, especially considering that many companies have established home working policies and cyber criminals will be searching for vulnerabilities in their remote working systems. The specialist media is already reporting a rise in cybercrimes. Both insurers and assureds should, therefore, review and consider increasing security measures.
It is difficult to predict the final impact of Covid-19 on the insurance sector in Spain. Certainly, insurance and reinsurance companies, industries and consumers will be hard hit in terms of economic losses and will have to adapt to face the new challenges ahead. It seems clear that the insurance sector will have to manage this health crisis as an economic crisis, given that insurance is one of the main economic engines and acts as a safety net for companies and, indirectly, for the economy. As a result, insurance companies may have to rethink their products in future to meet market demands, as the Spanish industry and consumers will expect to have the possibility of covering the consequences of future epidemic and pandemic situations.