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As many companies and major events around the globe are closed and canceled due to the spreading coronavirus pandemic, many businesses are dealing with massive losses since most common insurance coverage options do not cover communicable disease outbreaks.
There are options for coverage – including something known as epidemic insurance – but InsuranceQuotes analyst Erik Josowitz told FOX Business that it is not a very common product.
Many companies take out cancellation insurance for an event or have business interruption insurance. Josowitz said even individuals hosting large weddings may opt to take out cancelation insurance, which would typically cover something like a weather event.
However, after the SARS and MERS outbreaks earlier this century, Josowitz said a lot of companies revamped their cancelation policies to exclude communicable diseases. That means companies are not covered unless they purchased a specific policy.
Therefore, many major events that have been canceled as a result of the ongoing global pandemic were not protected. The founders of the South by Southwest conference in Austin, Texas, for example, said they did not have insurance covering cancelation related to disease outbreak. The event was scheduled to take place mid-March. According to local news reports, the group stands to lose tens of millions of dollars.
On the flip side, Wimbledon is said to have had “pandemic insurance,” which will help offset losses for having to cancel the tennis tournament.
According to a report from the Action Network, it paid $2 million for pandemic insurance over the course of the past 17 years. It likely began paying for the coverage following the SARS outbreak.
Josowitz expects demand for this type of coverage to rise in the near future – but the question is how much it will cost.
Traditionally, the policies have been rare – and therefore more expensive, which is why companies don’t typically purchase them.
But if they become more common – and as these communicable disease events increase in frequency – price points may become more accessible.
“With a lot more demand there’s greater opportunity to pool that risk together and to come up with products that are more affordable,” Josowitz said.
Challenges remain, however. For insurers, when events like this happen the losses tend to be very deep and widespread, Josowitz noted, as opposed to a weather event that would only affect certain geographical regions.
The WorldBank, for example, noted that a severe pandemic can destroy up to 1 percent of global GDP.
One company that has offered epidemic insurance coverage since 2017 – Munich Re – noted the events have become increasingly more common. However, the insurer withdrew its profit guidance for the year over coronavirus-related claims. Those claims were mainly in its property-casualty reinsurance segment due to the cancelation or postponement of large events, it said.
But when big events like South by Southwest are canceled, the economic damages go well beyond even what insurance could cover.
“The real economic impact of the event is not really something that can be covered by a cancelation insurance policy,” Josowitz said. “All the people come into one or more cities … they’re staying in hotels, going to restaurants and shopping – and cancellation insurance policy is not really designed to cover that.”