Although insurers commonly use the term 'disruptor' when referring to the latest advancement in fintech or when there is a development that meaningfully affects the status quo, the Coronavirus is the very image of a disruptor in all the ways that count.

Everything about the virus points to just how vulnerable markets are to unexpected global upset. Of course, the basis for insurance is to provide cover against unforeseen events, the Coronavirus partially fits in the frame of the unforeseen and insurers and reinsurers have, for a while, been warning that it is not whether, but rather when, we see the next "superbug".

What is interesting in this scenario is that the bug seems to be emerging as highly contagious but less deadly than originally thought. So far there have been 35,015 deaths to date despite the virus's global spread.

This brings into focus where the claims are likely to start emerging from. Contagious means protocols will be followed on quarantining people who have been exposed or infected. After all, even if the mortality is low, with a world population of over 7 billion, deaths may still be high if the spread is not controlled.

Quarantine, in turn, means people are unable to work, or come into physical contact with others, which is fine if you have a job where you can get work electronically and complete it at home. However, judging by the bulging skylines across our major metropoles, the vast majority of people still fill large buildings with centralised air-conditioning and shared canteens.

Coffee shops are a hive of activity in the day with people enjoying a coffee over a quick business meeting, or using the coffee shop's free WiFi to finalise a proposal or catch up on e-mails.

So, who is going to pay for all of this?

Travel insurance travails

Firstly, the most predictable casualty: travel insurance. Internationally, Forbes has noted that travel insurers are reporting an alarming surge in policy sales, with 'Cancel for Any Reason' selected as an optional upgrade in places where such niceties exist.

"I have seen two major insurers recently announce the suspension of international travel for their staff while they assess the situation. Even if you travel in your personal capacity, some companies are shortly going to require a doctor's note (after you have been tested for COVID-19) that you are fit to return to work," explains CEO of MiWayLife Insurance, Craig Baker.

While travel insurance will take some of the hit, the airlines and tourism industry will feel the hit financially as we see commodity prices under pressure off the back of an expected slowdown in travel as already evidenced above.

There are also conflicting opinions about whether travel insurers are liable for flight claims, depending on specific policy wording and the individual circumstances of each case.

Business insurance

With the first case being reported in Kwazulunatal on the 5th of March, the numbers now sit at a total of 1,280 cases and 2 deaths, which should cause one to spare a thought for the risk faced by people that are self-employed, such as plumbers, dentists and personal trainers, where being quarantined is a guaranteed loss of income for the business, even if you carry no mortality risk.

Think also of the local coffee shop where you stop off daily to beat the traffic and catch up on some e-mails, or for colleagues who catch buses and taxis to work. Simple acts of daily life such as going to a shopping centre or attending a concert or local football match, in places affected by the Coronavirus, have been significantly affected to the point that these places are now shut down. It remains to be seen how much of this business interruption can be covered by the insurance sector.

What about the fact that many components are manufactured in China and other countries with reported cases, or the fact that countries, such as India, are now taking precautionary steps by exporting less medication in case they need to contain the spread within their own borders?

In China, large-scale companies and assembly lines have been closed to prevent the spread of the virus, the knock-on effect is that we may see shortages of key components for things like motor vehicles. Given that Chinese manufacturing is ubiquitous in terms of the things we use daily, the impact is significant and the risks are elevated.

Life on the line

Ping An Insurance has also warned that life insurance figures, bizarrely, are dropping, even as claims are rising. Life insurance payouts for an increasing number of deaths, not to mention payouts for loss of income as the quarantine figures in China alone reach millions, could be a serious bill to foot.

"Most events linked to the Coronavirus, such as quarantine and even loss of life, are likely to be covered fully or at least in part by most life insurers," says Baker. "The sheer scale of something like the Coronavirus threat means that insurers will need to re-think processes on how to deal with potential claims volumes not seen in modern times. This is, of course, still theoretical in our markets, although places like Wuhan, which is the epicentre of the outbreak, will be facing the practical realities of this right now."

Reputational risk

The fact that most insurers and reinsurers would typically have contractual exclusions in place for epidemics, as the Financial Times noted in February, really misses the point.

As the article notes: "Clients are asking about the extent of their cover," said Clarissa Franks of insurance broker Marsh. That's all there is to it. Although exclusions are well within an insurer's rights (as a means to mitigate over exposure to risk), it can cause public ire more damaging than any payout; we have numerous examples of this in recent times here in South Africa."

Decades of perception of insurance as a grudge purchase is begging to come to boiling point if “ when“ the first report of an insurer refusing to pay out due to Coronavirus comes out. An unflattering Pontius Pilate narrative is likely to emerge, painting the not-too-hard-up insurance industry as one that has sold reassurance for centuries, only to wash their hands when the world really needs protection.

Although many well-established exclusion clauses exist for epidemics, just as they do for war, 'acts of God' and civil unrest incidents, this would do little in the face of public opinion stating that the Coronavirus crisis is exactly what insurance is for.

The surge in claims is also likely to highlight any fault lines between policyholder, insurer and reinsurer. For many years, the industry has acknowledged widespread misunderstandings many policyholders have with what's really covered in insurance, due to outdated, lengthy Ts and Cs contracts and further complicated in countries like South Africa, where the average citizen's financial literacy is severely limited.

A house of cards

What the Coronavirus really shows is the vulnerability of areas of the financial services system to global-level threats. It also shows how reliant everything is on a secure and stable insurance environment as, ultimately, insurance underpins just about everything that takes the economy forward from infrastructure projects, to the workforce, small businesses and ultimately your income and life.

At the beginning of 2019, long before Coronavirus had reared its head, the World Economic Forum noted that "the number and kind of infectious disease outbreaks have increased significantly over the past 30 years. Since 2011, the world has seen nearly 200 epidemic events per year.

Pandemics will be the cause of average annual economic losses of 0.7% of global GDP "or $570 billion" a threat similar in scale to that estimated for climate change in the coming decade's companies operating globally can take action to mitigate threats posed by epidemics."

Also, a truth universally acknowledged, but curiously not often within financial services itself, is that no industry is an island. As much as industry is reliant on insurance, insurance companies are reciprocally dependent on the economy that houses them, just like everyone else.

With economies and stock markets having been in turmoil since 2020 began, and with the bigger financial players facing increased costs associated with things like the screening of entrants across borders, increased costs of setting up facilities to deal with any Coronavirus cases and more, this will certainly have a knock-on effect for insurers.

The very definition of a disruptor is a new and unexpected entrant who highlights where the existing status quo was complacent. Today it is the Coronavirus, but tomorrow it will be something else. Because the world is now a very small place, we are all vulnerable and must re-think our approaches to risk management before it is too late. Which it may already be.