Navigating Unchartered Waters, the 2020 Catchcry
(that I never want to hear again).
As confusion continues to reign over the COVID-19 pandemic, more questions are coming in regarding insurance and what it does, and doesn’t cover.
For most of us, this isn’t going to be good news but it is important to be open, transparent and honest about the role insurance plays in this pandemic. This is a much longer than usual post from us but the seriousness of the situation warrants some more detail.
Business Interruption (BI) Insurance
Typically BI policies cover disruption to business as a result of physical damage to assets that the business relies on – fire destroying the kitchen of a restaurant or storm causing a roof to collapse in on a manufacturing plant would result in business interruption claims.
There is usually cover provided in the event that a business is forced to close by an authorised government department – including by an infectious disease e.g. if Legionnaires is detected in the building. However, an exclusion to almost all policies has been in force since the early 2000s relating to pandemic and respiratory diseases – to which COVID-19 belongs.
A typical insurer’s wording reads “there is no cover for highly pathogenic Avian Influenza or any disease declared to be a quarantinable disease under the Quarantine Act 1908 (as amended and now known as BioSecurity Act 2015) irrespective of whether discovered at the location of your premises or out-breaking elsewhere”. This means that the current situation facing businesses around the globe is not covered by business interruption insurance.
The exclusion for pandemics such as this is in part because insurers require detailed data on a loss scenario in order to rate (price) the risk. It follows therefore that the insurers either could not quantify the risk adequately, or the potential for a worldwide pandemic was very probable. To cover a risk like this, the premiums that would apply would be completely unaffordable by the average business. A disaster of this scale is precisely why the exclusion exists – as the insurer would never be able to cover the losses and would probably be bankrupted by the disaster (leaving policyholders without relief).
As the event causing the closure is not an event triggering a claim, there is also no cover for costs associated with the loss of stock – so for restaurants and cafes, this would include food spoilage.
Most commercial landlord policies (Business Packs) do not include rent default cover by your tenant.
For businesses paying rent, the first option is to seek rent relief if needed, from your landlord. The government is specifically encouraging commercial landlords to look favourably on this. Banks who are members of the Australian Banking Association have agreed to defer principal and interest repayments on commercial loans taken out by small businesses. This deferral will either extend the life of the loan or the level of loan payments will be increased at the end of the deferment period – meaning a lump sum repayment at the end of this period will not be required
Please remember that whilst this situation is all-consuming at the moment, the other accidents and emergencies of life will continue to happen and it is vital to ensure your businesses/homes/properties remain protected.
Travel Insurance Policies
If you have a travel policy in place and have booked and paid for travel prior to DFAT lifting the travel warnings to Level 4 (Do Not Travel) in the region or country you are travelling to, your travel insurance policy probably covers you for any out of pocket expenses due to cancellations – you should first see what refunds you may be entitled to from the travel providers. There is no cover where bookings were made to travel after the DFAT warning was lifted to Level 4. Since COVID-19 was announced as a worldwide pandemic on 11th March, it is now considered a “known event” and not “unforeseeable” and therefore there is no cover for COVIC-19 related claims under new policies issued after that date. Policies purchased prior to COVID-19 becoming a known event may also cover medical expenses for those already abroad and additional expenses incurred to return home.
Note that there is an additional benefit under some policies in the event that the supplier suffers financial collapse and is unable to fulfil the bookings made/credits given.
There are no exclusions in life insurance policies relating to death as a result of COVID-19 provided Government travel advice is followed. There is evidence that some insurers may exclude COVID-19 related deaths for new policies written. This will not affect existing customers or people who take out life insurance through their superannuation. It is highly likely that applicants for new policies will be asked additional questions regarding travel and exposure which may result in referral for further assessment. We will provide more information on this as it comes to hand.
Premium Funding Contracts
We have been asking our funding partners for updates on their position regarding interest rate reduction on loans. At this point, we are waiting on an industry decision to be communicated to us. In the meantime, if businesses are suffering financial hardship, we will apply to the funder on your behalf on a case by case basis. I expect we will hear more in this space in the coming weeks.
Landlord Insurance – Residential
Your tenant losses their job or their income as a result of COVID-19 and is unable to pay their rent. Is this covered under your landlord policy?
Assuming you have elected to include Rent Loss/Default, it is possible. The fact of the tenant losing their job and suffering financial hardship– regardless of the cause – should theoretically trigger a rent default claim. However in this situation, what usually happens is that the landlord sends the requisite legal reminders, and notices to evict. The tenant either leaves voluntarily or is evicted legally and the rent default is then calculated from when the tenant stopped paying rent, to when the premises are re-let or the maximum number of weeks provided for under the policy is reached.
This brings up a number of issues:
Whether you – the landlord – are prepared to evict the tenant in this scenario. Given the support the government and the banks are providing in mortgage relief, it may be better to ride out the period for the next couple of months.
Be aware that by doing this, you may be seen to be voluntarily providing leniency by agreeing with your tenant to reduce or halt the rent, and you are likely to be denied a rent default claim by the insurer (at least for that initial period).
There is discussion right now about a moratorium on evictions. If this eventuates, it is unclear how it impacts on landlord insurance and rent default. It is a requirement by the insurers that the insured follows the protocol of arrears notices and eviction in order to trigger a claim. We are waiting on updates from the insurers in this regard and will forward information to you when it comes to hand.
It is worth bearing in mind that as an investor, evicting a tenant due to rent default as a result of financial hardship during COVID-19 may not be the most economical choice, as the rental market looks to be flooded with properties that were usually available on Airbnb or short term executive rental, and finding a new tenant quickly may be difficult. In addition, mortgage relief provided by the banks may offset any loss of rent.
If your tenant defaults on their rent, it is important to continue to follow the usual procedures and notifications if you wish to lodge a claim.
I know all of you are familiar with the massive relief program being offered by the Federal and various State governments and I urge you to avail yourself of these to assist both your business and your domestic situations. These stimulus and relief packages may well provide the cushion that is needed to get us to the other side of this health crisis
Logan Insurance | Client Stories.
We have created short videos to introduce two of our client stories
Betta Home Living
On New Years eve 2020, Betta Home Living in Bateman’s Bay was totally destroyed by bush fire.
Adequate property insurance meant our clients could be swiftly compensated for the loss.
Bitton was founded in Alexandria, Sydney in 2000. Since then, David and wife Sohani have launched a product range of the same name, a small business consultancy, Bitton Consulting and a second café,
Bitton Oatley. A third café is opening in Rose Bay in Jan 2020.
BOOB LOOB is one of our newest clients. Their product encourages women to perform breast checks that are easy and effortless. Boob Loob is designed for women to put their mind at ease without changing their daily routine. Proudly made in Australia and every bottle purchased online means $1 dollar donated to the McGrath Foundation.
At Logans we provide cover for businesses of all types.
While they are all different in their insurance needs, Betta Home Living, Bitton and Boob Loob
all have extensive cover placed through Logan Insurance Brokers. Cover for these clients includes Public Liability, Business Interruption, Transit, Product Liability,
Theft, Fire, Machinery Breakdown and Food Spoilage.
Our clients have saved $100’s a year by combining and customising their business cover.
Our business is to know your business. Logans will always provide options for the best available cover for your business. That way disappointment is avoided when it comes to making a claim.
If you would like to see how Logans can help your business, please use the link below.
A good insurance broker will ask relevant questions and seek to keep up to date on your business needs. They will also keep up their education in new products and cover in the market, ensuring you have the broadest choices available to you.