By Simon Fisher, Executive Vice President – Gulf, ACE Group
As the world holds its collective breath over the full human and geographical impact of COVID-19, which is developing on an hourly basis and which remains unclear amidst the uncertainty of exponential transmission rates, one common consideration is to what extent private insurance policies respond to the cost of treatment in countries that adopt a predominantly private healthcare model.
Technically, and as a general rule, now that the virus has been classified by the World Health Organisation (WHO) as a ‘pandemic’, healthcare policies will no longer respond to the treatment of a policyholder who has been diagnosed with COVID-19, due to policy exclusions which recognise this change. Notably in UAE, health authorities stipulate minimum coverage requirements in order for policies to be deemed regulation compliant. One service listed ‘outside of the scope of health insurance’ by the Dubai Health Authority is treatment for “all healthcare services for internationally and/or locally recognized epidemics.”
This exclusion is designed, of course, to ensure that health insurance providers will not face crippling and unsustainable losses in the face of a pandemic. The question then becomes whether the state will pick up the cost of care. Depending on the number of diagnosed members and the rate of growth in any one country, insurers may still cover the associated costs as a gesture of goodwill. However, if the situation continues to deteriorate then we can expect insurers to enforce this exclusion to protect their balance sheets.
Many states may have already taken immediate action and decided to pay for the cost of treatment, prevention and quarantine as a first action response in an effort to prevent the spread and therefore patients relying on private insurance policies will receive the necessary care regardless of who is covering the cost.
Currently, approaches differ country to country. In Bahrain for example, diagnosis and treatment of COVID-19 claims are being handled at a state level, either at quarantine sites or at the main government hospitals. Insurance companies are not involved once patients are diagnosed and the state bears the cost. Similarly, in the UAE, the Ministry of Health and Prevention (MoHAP) has implemented instructions about when to seek medical attention from one of the main public hospitals or designated primary care centres.
In the US meanwhile, the Centers for Disease Control and Prevention (CDC), the country’s leading national public health institute has been covering the cost for COVID-19, while certain states including New York, Washington and Nevada have ordered health insurance companies to waive co-pays and deductibles for coronavirus testing. Japan is now covering coronavirus screening through the country’s national health insurance programme, which is administered by local governments.
As being witnessed around the world, the impact of the coronavirus outbreak at a national level is affecting major economic contributors, with global tourism, aviation and hospitality among the industries facing enormously challenging times amid unprecedented closures and lockdowns. As the situation develops, we can expect to see supply chains disrupted, with significantly reduced capacities in certain areas of manufacturing and trading.
Business interruption insurance could help cover lost income during the event of a shutdown period, however very close attention should be paid to the wordings to determine whether the policy would respond where there is no physical damage and the root cause of business losses are caused by the impact of the disease.
Governments can seek to protect themselves by arranging bespoke insurance and financing structures, which are designed to provide immediate cash flow to pay for logistical support and assist with combatting the impact an event such as COVID-19 might have on the country. Policies can respond by making lump sum payments in the event of parametric or measurable triggers being met, regardless of the actual level of devastation.
Parametric insurance relies on a measurement of a natural phenomenon or index. In the case of coronavirus, the cover could be structured to respond once the virus reaches a certain pre-agreed level of contagion, as defined by the number of cases, speed of spread, geography and other factors.
Unfortunately, with the situation having developed globally and so quickly, it is unquestionably too late for countries seeking to buy parametric insurance to protect against the COVID-19 pandemic, as it is highly unlikely that any reinsurer would agree to cover this exposure now that the risks and exponential transmission rates are known – even for countries that have not yet seen any cases. However, similar products may still be attainable in relation to other threats, whether public health, natural disasters and hazards, or man-made risks, which can provide immediate financial support in the event of any future catastrophic events.
Governments in this region have been proactive in their approach to guard against potential financial losses. Abu Dhabi has announced a stimulus package to preserve the emirate’s economic gains and support the private sector, while easing the cost of living for residents. Similarly, the Government of Dubai announced an economic stimulus plan to reduce the cost of living and protect businesses, primarily in tourism, retail, trade and logistics.
While the situation is a concern for multiple industries, including insurance and reinsurance, large-scale pandemics are not new to humanity. We have dealt with crises from the Plague of Athens in 430BC, to the Black Death in the 14th century and Spanish Flu in the early 1900s, the latter is estimated to have infected 500 million people worldwide (27% of the global population at that time). Adhering to the advice of local health authorities, isolating patients and social distancing remain pillars to minimise the spread of any virus. However, when facing up to the ultimate impact of COVID-19 and the prospect of future pandemics, it is crucial that industries, and in particular companies operating in the insurance arena, do not work in isolation. We must all work in tandem with relevant authorities to navigate our individual and collective journeys.