The coronavirus (COVID-19) outbreak has brought new challenges for business owners. A new set of conditions laid by both insurance companies and reinsurer General Insurance Corporation of India (GIC Re) excludes from their coverage, events like a business interruption or advance loss of profit due to COVID-19.
On April 27, Insurance Brokers Association of India wrote a letter to the IRDAI Chairman Subhash Chandra Khuntia seeking reprieve from the COVID-19 exclusions and sought that continuity be provided in the insurance despite the lockdown.
Insurance brokers are involved in selling corporate policies including fire/property insurance and liability policies to business owners and corporates.
The Indian government had announced a lockdown from March 25 onwards for 21 days to prevent COVID-19 spread. This was later extended till May 3.
What is the issue?
Frequently Asked Questions
A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.
There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.
Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.
As per the terms and conditions of property/fire insurance products, the cover ceases to exist if the premises are unoccupied for a period of 30 days.
Due to the lockdown, factories/warehouses and commercial establishments have been unoccupied since March 25. While insurers have said COVID-19 will be treated as a special situation and cover will not be explicitly denied, a lot of restrictions have been attached. Moneycontrol had reported how a slew of conditions has been set to the existing policies.
Insurer’s consent also has to be taken in advance for policy size of over Rs 5 crore where a decision will be taken by the insurance company on a case-to-case basis whether the cover will be extended or not.
The IBAI letter, which has been reviewed by Moneycontrol, said policyholders are concerned about the withdrawal of cover or imposition of new onerous conditions and warranties for continuity of coverage.
“The policyholders are complaining that the absence of any competition is leading to a multifold increase in insurance premiums (with all insurers quoting the same price in a de-tariffed market), application of COVID-19 exclusions unilaterally, and now, coverage continuity being put under doubt,” it said in the letter.
Insurers have advised various policyholders based on the guidance received from GIC Re that continuity of cover is subject to compliance of specified conditions during lockdown period and prior written approval of insurer needs to be taken for continuity of cover.
The fire insurance rates for 291 occupancies have been revised from January 1 onwards. Despite this, claim payments could be a bone of contention.
Business owners have also complained that this is not an ordinary situation but a government-imposed lockdown.
“Why are we being paying a price for a set of directives being imposed by the government? Premiums have been paid on time. Incidentally, fire insurance rates were also increased by almost 30 percent by our insurer. But we still may not get claims paid for this period,” said the chief executive of an appliance maker.
This means that in case of a fire or theft in large commercial premises (with insurance above Rs 5 crore) during a lockdown, claims will not be paid unless prior consent has been sought.
Pay for business interruption
Insurance companies are following the advisory by GIC Re on this matter which said that business interruption cover will not be applicable for the lockdown period. Due to this, more than Rs 5,000 crore of revenue/financial loss due to COVID-19 lockdown will not be payable by insurance companies.
Business interruption (BI) cover usually pays for disruption in business/production activity in a building or commercial establishment due to fire, floods, earthquake or other natural disasters.
“The blanket advisory to not cover business interruption is not rational. Policyholders are afraid that the blanket advisory of GIC Re indicating that there is no BI cover in property policies and no advance loss of profit cover in project policies defies accepted principles of BI loss adjustment,” said IBAI.
The letter also pointed out that such blanket exclusions and advisories have not yet been provided for insurance claims in other markets. The entire globe is impacted by COVID-19 where businesses have been ordered to temporarily shut operations.
IBAI wants the IRDAI to issue necessary directions. However, sources said insurers and reinsurers would be given the right to take a decision on this matter.Follow our full coverage of the coronavirus pandemic here.