Economy Archives - Darryn Van Hout

Coronavirus: Insurance questions answered

Darryn Van Hout — Fri, 27 Mar 2020 22:13:38 +0000

The 2020 Coronavirus pandemic in Australia is part of the rapidly spreading global epidemic of Coronavirus disease 2019 (COVID-19) as it is officially known, a novel infectious illness caused by severe acute respiratory syndrome Coronavirus 2 (SARS-CoV-2).

As at 26 March, Australia had reported 8 deaths and 2,367 confirmed cases of the disease. Globally, more than 22,000 people have succumbed to COVID-19 while over 500,000 cases of infection have been confirmed in about 170 nations and territories. So far, 117,000 people have recovered from this pandemic.

In recent times, it hasn’t been uncommon to hear declarations of insurance catastrophes in Sunshine Coast and Australia but the novel Coronavirus (COVID-19) outbreak is unlike anything we’ve heard or seen before.

While most of us have already gone ahead to define the outbreak of COVID-19 as a catastrophe, the insurance declaration isn’t really based on a surge in claims—no, at the moment, no one has the slightest idea how many claims will be filed by the time the virus dies away—however, it’s important that “consistent messages” be delivered.

Insurance questions answered

There’s so much confusion in most countries including Australia, so to get the insurance questions answered, I spoke to various experts and came up with the following guide which summarises how various types of insurance covers are affected and their response to the COVID-19 disease.

Event cancellation

Various events including music festivals, sports events and industry conferences have been impacted by the virus though most event cancellation policies include communicable disease exclusion.

While an extension can be issued, unfortunately now that the coronavirus outbreak is a “known event” it’s impossible to get cover for it.

According to reports from Sportscover a specialist underwriting agency, most of their clients did not have a fore sight or thought to make arrangement for such an extension.

Even if those insured made prior arrangement to cover communicable diseases before the outbreak, insurers would unlikely pay for the claims if the cancellation of the event was based on a decision made by organisers and not a directive from the authorities.

The Friday declaration by the Federal Government limiting gatherings to just 500 people could therefore carry some implications on this policy.

Business interruption

The collapsing global markets are indicative that it’s not business as usual. The world of business has been significantly affected—from lock downs to shut downs, it’s all bad news for business.

And even the various stimulus set up by governments is not helping— the markets continue to fall as recession looms. This is sure to have far-reaching impact on the insurance sector.

While most business interruption policies vary significantly, 99% could exclude coronavirus related claims.

According to Leon Briggs of Sedgwick, it’s easy to understand why insurance firms wouldn’t want claims for an occurrence that affects nearly every business in the country.

The Insurance Council of Australia (ICA) notes that “some specific policies may differ” but most of them are likely to feature exclusions related to losses arising as a result of diseases listed under the Biosecurity Act or the Quarantine Act.

Home insurance

Information posted online suggests that the home and contents sector is considered an essential service. This means that people and businesses with open insurance claims and more importantly, those who have approved building contracts are still working with loss of momentum.

How is construction considered an essential service?

According to Master Builders Victoria, confirmation has been received from the Victorian State Government that the stage one restrictions announced by Scott Morrison do not apply to construction sites.

The statement from the Victorian premier says:

“The businesses that will close due to the Stage 1 shutdown include pubs, clubs, nightclubs, Crown Casino, and licensed venues in hotels and pubs. It also includes gyms, indoor sporting venues, places of worship, cinemas and entertainment venues. Restaurants and cafes will only be allowed to provide home delivery or takeaway services.

This decision and other containment measures are meaningless if Victorians don’t take them seriously or don’t think they will be caught if they flout the rules.”

Travel insurance

This insurance cover is probably the most worrying and confusing for customers given that different insurance companies will handle it in varied ways to both trip cancellations and medical expenses incurred overseas.

The easiest way is to “check your policy” but then different insurers have wide variations in their policies. Some insurance firms go beyond their policy wordings, which would be useful for their clients but again could add to existing state of confusion.

Numerous insurance policies incorporate a general exclusion that bars claims of actual or possible pandemic or epidemic or a threat of a pandemic or epidemic.

Obviously, this is bad news to those who depend on insurance cover, but again, it’s quite understandable.

However, not all travel policies have the pandemic excluded. No doubt, nearly all will exclude insurance claims for a “known event” though insurance companies currently don’t seem to agree on when the coronavirus achieved this status. Possible dates are between January 20 and January 31.

If the Australian government decides to enact a “do not travel” warning for various locations but an Aussie goes ahead to travel, your claim would possibly be excluded.

On the other side of cancellation, consumers who choose not to travel in the nonexistence of a government directive will most likely not be allowed to lodge claims.

At this juncture, there are concerns that for travelers, a travel insurance policy is becoming more of a gamble.

Today, we know about Covid-19 and hence it’s too late to qualify to claim. And in case a person made arrangement prior to the outbreak of the disease, would they have truly had the time to comb through a range of products and their disclosure statements just to compare exclusions related to various pandemics? Your guess is as good as mine.

Life insurance

According to the latest statement issued by the Financial Services Council (FSC) on behalf of the life insurance industry, the various pandemic exclusions present in general insurance are excluded in life policies.

“There are no exclusions in existing life insurance policies that would prevent the policy paying out for a claim related to coronavirus if you follow government travel advice,” the FSC says.

“No-one should be concerned about their existing life insurance policies.”

Workers’ compensation

There are various concerns that the coronavirus outbreak could result in a rush of workers’ compensation claims and related premium increases.

If a worker can prove that their job significantly exposed them and caused them to be infected by the virus, then a claim can be lodged successfully.

The State Insurance Regulatory Authority of New South Wales noted that each claim shall be considered on the basis of individual merits.

According to the authority, consideration will be given to various work-related activities such as travel to a region prone to a known viral outbreak or being in contact with people who have already been infected with the virus.

Covid-19 Alert

Are you still confused about the Coronavirus? Well, keep it here for more updates. But remember, COVID-19 is an entirely new strain and there is no existing immunity. But various measures can go a long way in helping stem the spread—washing hands regularly, self-isolating if you feel sick or recently returned from overseas, and last but not least, exercising social distancing.

All in all, do stay safe!

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Coronavirus – The Perfect Storm in Australian Economic Environment

Darryn Van Hout — Fri, 13 Mar 2020 23:20:06 +0000

The spread of the deadly Coronavirus (COVID-19) which was first discovered in Wuhan, China, has quickly become a global pandemic. In addition to the spread of Coronavirus in Australia, more than 100 countries have confirmed cases, with the exact nature of its transmission remaining opaque.

Historically, the aftermath of the Black Death in Europe became the “waning of the Middle Ages”, putting to an end the longstanding universalise culture. Historians think the Coronavirus epidemic could end up with the same far-reaching and highly significant global changes.

Truly, an international pandemic such as COVID-19 is not just momentary tragedies of disease and death. The omnipresence of the massive threats it brings, and the fear and uncertainty that accompany them birth new beliefs and behaviours. People become more credulous and suspicious, as well as sceptical about engaging in anything that looks and sounds strange or foreign.

Declared Global Pandemic

The weakening global economic outlook in the wake of the COVID-19 has caused high speculation that some major central banks in the world could lower interest rates after the Fed’s 50 basis point slash earlier in the week.

Even if the ASX and Wall Street recovers before the financial storm caused by Coronavirus dies away, the global economy won’t be the same. This as side, this new global threat or perfect storm may lead way for optimism and productivity. Nationalism and speculation rarely get a chance to combine forces as they are doing now in the wake of COVID-19.

When Coronavirus leapfrogged from Wuhan all the way to Italy, the ardently warm and welcoming country had to shut its borders and join the rest of Europe in calling for restricted movement across its national borders—a historic demand by nationalists.

In the meantime, financiers speculating on government debts are busy shifting from Italian to German government bonds, looking for the kind of financial safety only offered by the continent’s hegemon during critical times.

Ironically, COVID-19 is delivering the rare freedom and opportunity for money to transcend a border-less financial space while humans stay hedged in as ever.

Wall Street Recovery

In the United States, Mr Trump has combined his unrelenting calls for building taller walls with new instructions asking money-men to “buy the dip” on the Wall Street instead of relying on their imbue to seek redemption in the unattractive but safe bond markets.

If speculators choose to believe the U.S. president, Wall Street could recover faster before the pandemic goes away. The xenophobic financial forces will have won and the country’s progressives will face a tough struggle with every political front.

On the other side of the European Union, the most influential elites will finally breathe a sigh of relief that they were able to forego a fresh depression and go back to managing the recent times of economic stagnation in the best way possible, times that have been marred with heavy doses of added, COVID-19 reinforced xenophobia.

Whether Wall Street will take heed to President Trump’s advice and “buy the dip”, only time will tell. For now, the strong players have two minds. But the existing drop in the stock market doesn’t worry them any bit. Their main concern is the recent bull market that was operating on suspect debts and that Coronavirus could have burst a bubble.

Europe – Worst Case Scenario

In Europe, the worst impending scenario for investors would be well-established corporations relying on free handouts from the European Central Bank, especially at such a time when the domestic demand has stagnated and the Chinese import market is on the verge of collapse.

Borrowing a leaf from the cash crunch situation of the 2008, and the Eurozone crisis of its aftermath, bullish speculators are turning to central banks particularly the Fed and the ECB to once again do “whatever it takes” to salvage their dwindling fortunes. But there are two questions that linger on their minds—will the central banks bow to this pressure? And if they choose to, will the free money be adequate?

It’s easy to answer the first question: governments on both sides of the Atlantic have been rendered impotent. In the U.S., the deficit in the federal budget is shockingly at an all-time high, especially given the prevailing strained labour market, as the Eurozone continues to struggle in its fiscal compact.

Hence, the central banks will be obliged—whether they like it or not, to arise to the occasion. We’ve already heard announcements of interest rate cuts, even for government purchases and private debt of monetary authorities.

But, will it help for the central banks to pump in more funds in the Coronavirus infected capital markets? Will the economy recover if enough liquidity is injected into the system? Or will this be like a slow puncture that expects a pump-priming to remain inflated?

Besides, will the fresh chunk of public money collapse the existing wall of xenophobia? The unfortunate answer to this question is informative of the economic ones as well.

Economic Crisis

There were two reactions to the 2008 economic crisis that rescued capitalism from collapsing totally: the gigantic pumping of liquidity into the sick economy by central banks especially the Fed; as well as China whose government intentionally set up the biggest private credit bubble of all time to replace lost export opportunity by a colossal invest boost.

China and Fed’s intervention successfully re-floated global finance and set stock markets back on track to their greatest growth surge. Thankfully, the world did not revert back to its pre-2008 behaviour.

Prior to the 2008 period, Wall Street played an important role in reprocessing non-US surpluses that were a consequence of American deficits back into the vibrant global investment funding.

In the aftermath of the 2008 economic crash, the refloated Wall Street was unable to execute that task hence channeling much of the abundant liquidity to buying back shares and other asset purchases. The outcome was that the pre-2008 economy featured savings that permanently surpassed the capital goods investment.

Considering that savings refers to the supply of money and its investment the demand, the permanent condition of excess money supply explains the reason for the permanent low or better still, negative interest rates.

Additionally, it explains the prevailing downward pressure exerted on median wages against forces of rocketing asset prices that continue to cause insurmountable inequality thereby churning out the political conquests of xenophobic nationalism.

Of course, the same thing that happened in the aftermath of the 2008 financial crunch, speculators are expected to make a mint out of this crisis brought about by the COVID-19 as the superior nationalist forces milk the resulting disgruntlement out of the sickening situating.

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