Pandemic flu – latest risk and insurance advice from Marsh

London, 28 April 2009

Following media reports concerning confirmed cases of Swine Flu (A/H1N1) among the human population in Mexico, Canada, the US, the UK and Spain, as well as suspected cases in several other countries, Marsh, the world’s leading insurance broker and risk adviser, has outlined the risk and insurance implications for businesses arising from a possible human pandemic. The H1N1 flu strain was responsible for the Spanish Flu pandemic in 1918, which is estimated to have caused up to 50 million deaths worldwide.

Swine Flu is common in pigs and usually only contracted by people in close contact with infected animals. Human to human transmission is rare but has been confirmed with the current strain recently found in Mexico. This virus is being described by the World Health Organization (WHO) as a new subtype of A/H1N1 not previously detected in pigs or humans; a mutation which may allow it to pass more easily among the human population.

The WHO is currently at Level Four of its Pandemic Alert, which reflects limited infection among the human population and reported cases in multiple countries. The change to a higher phase of pandemic alert indicates that the likelihood of a pandemic has increased, but not that a pandemic is inevitable. Should Level Five be declared, the WHO consider it “a strong signal that a pandemic is imminent and that the time to finalise, the organisation, communication, and implementation of the planned mitigation measures is short.”

If it is proven that the virus is easily transmitted from human to human and the WHO continues to increase the threat level, the possibility of restrictions on travel and the passage of some goods, may ensue.

Should businesses be concerned?

• Unlike Avian Flu, it is believed that this outbreak does not pose a significant threat to livestock farmers, who were concerned by the spread of disease by migratory birds.
• The psychological impact could still be widespread. In Mexico, the majority of restaurants and bars are closed, public events are cancelled, and many people are staying at home and away from work, rather than travelling.
• The travel and tourism industries are likely to be adversely affected by falling passenger numbers, if tourists choose to stay at home or change their travel. Countries such as the UK, France and Germany are now advising against all but essential travel to Mexico.
• Supply chains may be affected if the virus spreads, particularly where suppliers are from countries with denser populations and more restricted access to healthcare.

Business Continuity and Crisis Management implications

While many firms have procedures or plans for emergencies that impact on business continuity and/or crisis management, they may not adequately cover a situation involving communicable diseases that affect employees and the general population on a wide scale. Even companies that have prepared pandemic plans over the last few years may not have had the opportunity to evolve or test those plans fully.

A pandemic could escalate quickly, last for many months, and infect 25% or more of the world’s population, according to public health experts. Many organisations believe that at the peak of a severe pandemic, up to 75% of the workforce may be absent from work.

To address this risk, firms need to monitor the situation very closely, paying particular attention to government and WHO advice, and examine and possibly amend their existing pandemic, business continuity and crisis management plans accordingly.

Marsh recommends that a company’s management review its risk management controls, human resource and other pandemic policies, crisis management plans and crisis communications capabilities. Companies should update these plans based on the threat of a pandemic. Additionally, there are preventive and preparatory actions that can and should be taken now.

The key points for businesses to consider immediately are:

• Review company travel policies, hygiene and medical screening policies and policies on anti-virals and healthcare support, including providing anti-bacterial sanitizer, masks and other materials;
• Identify possible social-distancing and other means to minimise exposure and spread of illness within the work place;
• Review methods for providing ongoing information about both the pandemic threat and the status of the business to employees at work and at home;
• In population centres, make sure the plans allow for staff to work at home where possible and appropriate;
• Consider if there are any vital processes that must be maintained for the normal or a central location in a pandemic. For example call centres, health services, and services vital to the vulnerable;
• Review the structure that will be necessary to manage the crisis effectively. This includes how to implement multiple business continuity plans, cope with an major increase in the number of employees working from home, and substantial changes to the marketplace and the supply chain;
• Ensure crisis management and business continuity management plans include pandemic scenarios and exercise the plans where possible.

The main thrust for business continuity planning and management should be to reduce exposure, proactively minimise impacts, communicate extensively, minimise peaks of absenteeism, plan for the possible re-occurrence of flu and constantly adjust business activity and the supply chain to reflect shifts in the local and global marketplace. In the event that the WHO raises the threat to Level Six (widespread human infection) firms need to have the following:

• A crisis management plan that includes tailored elements for pandemic, including policies for business travel, locating staff, social-distancing and medical screening and an extensive awareness and communications plan and process;
• An alternative workforce or work-at-home policy and plan in the event that a large portion of the workforce is or may be impacted by pandemic;
• A strategy for taking special precautions to assess the health of the workforce and potentially turn back infected workers who report for work;
• A process for dealing with emotional impacts of such events as death on the individual’s family members and on the workforce in general;
• A process for orderly shut down or reduced service delivery based on reductions of customer demand, labour force, raw material supply or energy resources;
• Continuity procedures for core functions that must be kept running;
• A structure and process for working collaboratively with third party suppliers to maintain critical flows of supplies, business services and product.

Both global and national leaders are available from Marsh’s Risk Consulting Practice to discuss the risks and crisis management/business continuity issues associated with Swine Flu and general preparedness for pandemics.

Insurance implications

The outbreak of Swine Flu among the [ UK] population will undoubtedly have an impact on businesses’ insurance programmes, regardless of size or sector. Below is an outline of the main types of insurance, the potential impact of an outbreak on coverage and recommendations to address the issue:

• Employers’ Liability

Employers’ Liability policies for £5m for each occurrence are compulsory for the vast majority of UK businesses and should not contain any exclusion or limitation, at least for this amount, that will prevent a claim from an infected employee being dealt with under the terms of the insurance.

Should it become necessary, this type of policy would respond to employee claims for Swine Flu in the same way as any other infectious disease, provided legal liability is established, for bodily injury, death, disease or illness sustained by an employee within the territorial limits of the policy and caused during the period of insurance. No exclusions are permitted by law for the first £5m of each occurrence.

• Public and Products Liability

The Public and Products Liability policy provides coverage against liability for injury, material damage or limited financial losses of third parties that result from the acts or neglect of the insured. This type of policy is held by almost all businesses and insurers are not, currently, imposing any specific Swine Flu exclusions.

However, for both Employers' and Public/Products Liability, these policies will only respond where there is a legal liability on the part of the insured, subject to the other policy terms. Where a business is directly involved in the handling, processing or transport of any animal stocks, the ability to establish that such a liability exists becomes more likely, and the implementation of reasonable risk control measures to protect employees or others will be critical to the defence of any such liability claim.

• Environmental Impairment Liability (EIL) Coverage

Some insureds may also have separate and distinct coverage, under an EIL policy, for injury or damage arising out of pollution or contamination. These policies may contain restrictive provisions that will be invoked by insurers in response to claims for property damage or injury arising out of contamination by viruses.

• Business travel insurance

Companies should check the specific cover, terms and conditions of their business travel policies in relation to cancellation of foreign travel.

• Property Insurance

There is risk of interruption to the business in certain circumstances . For example if media suggest employees “avoid travel into particular affected areas” or suggest that employees “stay at home” disruption to travel services might also disrupt business.

There could also be more direct effects due to an incident occurring at or near the vicinity of the insured’s premises. This could cause either absences through fear (of employees) or loss of attraction (of customers) or even the physical intervention of a competent local/civil authority ordering closure of insured’s premises.

There may also be costs incurred in “cleaning” an affected area of the premises of some organism that may give rise to the disease.

So how might a Property Damage and Business Interruption policy respond?

• A standard Business Interruption trigger requires that interruption to the business must be caused by damage (often described in policy triggers as “physical damage”) to property (used by the insured) at the insured’s premises.
• In respect of any actual incident or discovery of organism on the premises, insurers could argue that the presence of Swine Flu on the premises does not constitute “physical damage” (or even “damage”) to property under the policy.

The obvious focus for consideration of any valid cover for business interruption is the general availability in the UK marketplace of an extension of cover for “Infectious Diseases”. This is an extension wording that grants cover typically for a three-month Indemnity Period and for sub-limits in the range of £0.5m to £5m. However, cover under this extension may be compromised by commonly imposed insurer restrictions limiting cover to an incident on the insured's premises only and/or to it being an event that must be notifiable by order to a competent authority. It is not currently the case that an outbreak of a human strain of Swine Flu is notifiable.

• Cancellation and Abandonment

Policies placed before the Swine Flu risk was deemed to be a threat will not have a Swine Flu exclusion. This means that any claims due to events cancelled as a result of Swine Flu are likely to be paid, providing that the cancellation of the event is deemed necessary and beyond the control of the insured. In practice this means that Swine Flu must make it impossible for the event organiser to continue staging the event. Examples of this include: the conference centre/venue being closed due to Swine Flu, and movement or travel being prohibited or severely restricted within the area where the event is being held.

Cancellation and abandonment policies do not cover claims as a result of disinclination or reduced attendance. However, advice given by the World Health Organization not to travel to a certain country or area has been deemed to be a valid trigger for necessary cancellation. Where applicable, insurers will want the insured to reschedule the events to a later date rather than cancel. This is in some cases proving difficult due to the uncertainty of when the Swine Flu risk will be over.

Marsh has spokespeople available for comment on the insurance implications associated with Swine Flu and a possible human pandemic.