On 11 March 2020, the Insurance Council of Australia declared the COVID-19 outbreak to be an ‘insurance catastrophe,’ following its designation as a pandemic by the World Health Organisation.
Many Australian businesses are questioning whether existing insurance policies cover the losses relating to COVID-19. Whether COVID-19 is an insurable event is a question of the wording of the policy and businesses should seek advice from their lawyers and insurance providers or brokers. For instance, a policy may respond to the closure of a business by an authority for a number of risks, including infectious disease.
Traditionally, business interruption insurance cover is triggered by ‘damage’ to the business’ premises. The types of loss generally covered by business interruption insurance include:
- a loss of revenue and gross profit;
- the payment of wages and other expenses;
- the expenses incurred in mitigating losses (for example increased cleaning costs and personal protection equipment);
- any additional or increased cost of operations; and
- any fines and/or penalties for non-completion or partial completion of contracts.
An insurance industry taskforce has been formed as part of declaration by Insurance Council of Australia to ensure that accurate claims data is captured by industry, and that industry positions on the virus can be understood by stakeholders.
In the event your business intends to make an insurance claim, the following records should be compiled to support a claim:
- A detailed record of the series of events, including directives from the government, the impact on the operation of the business from its current premises, staff availability, the constraints in the supply chain and your business’ response.
- Documentary evidence of additional costs incurred in response to COVID-19, for example, additional cleaning costs.
- A record of any mitigating actions your business has taken, for example, restaurants moving to a take-away or home delivery only model, a reduction in orders for inventory, promoting the sale of excess stock, offering of any discounts.
- A history of financial performance including financial statements and monthly management accounts (including, if recorded, details of foot traffic or visitors). Monthly reports are useful to compare the disrupted period with the same months of past unaffected years.
- Any budgets or forecasts prepared before COVID-19. This is important to show the expectations of your business but for the event.
- Any amended budgets or forecasts that reflect the impact of COVID-19.
COVID-19 presents a unique and challenging landscape for individuals and businesses. Although the nature, timing and extent of any insurance coverage is unknown at this stage, it is not too early to start getting your records in order and where appropriate, to seek external assistance to quantify the extent of any claim. This typically requires the assistance of a Forensic Accountant and our team is experienced in advising on the information and preparation of a report on the financial impact to the business.