Enterprises counting on insurance coverage to help mitigate the financial impact of COVID-19-related closures are likely to find that policy language specifically precludes claims for business interruption resulting from pandemics.
But a new survey conducted by 451 Research, which is part of S&P Global Market Intelligence, suggests that a majority of the global panel of information technology decision-makers who responded nonetheless believe that their organizations maintain adequate insurance coverage to protect against risk of business interruption posed by the outbreak.
The Voice of the Enterprise: Digital Pulse, Coronavirus Flash Survey March 2020 was conducted between March 10 and March 19. Results reflect completed survey responses from approximately 820 individuals that represent small, medium and large enterprises in the private and public sectors, with 78.6% of respondents based in North America. Survey results are supplemented by more detailed insights derived from interviews with 16 information technology professionals.
When asked to indicate their level of agreement with the statement, "My organization has adequate insurance coverage to protect against risk of business interruption posed by coronavirus," 44.0% of respondents said they "somewhat agree" and 19.9% said they "strongly agree." The remaining 36.1% of respondents indicated that they disagreed with that statement, with only 10.6% saying that they strongly disagreed.
The level of confidence in insurance coverage varied by the sector in which respondents' organizations reside as well as their size based on both employee count and revenues. Respondents with larger organizations were more likely to agree that they maintained adequate coverage.
The survey results support anecdotal commentary in an increasing number of news articles where U.S. business owners and operators have expressed surprise and dismay that business interruption coverage is typically limited to losses caused by physical damage.
The discovery and the swiftness of the economic fallout from the outbreak have triggered political responses that call upon carriers or governments to provide coverage on a retroactive basis. In some circumstances, disagreements over policy terms have already spawned litigation.
Executives at a number of property and casualty companies in the United States and Europe, including W. R. Berkley Corp., Generali and Talanx AG, have said in recent weeks that they anticipate only a minor impact, if any, from valid primary business interruption claims resulting from COVID-19 due to applicable exclusions.
The 451 Research survey finds that respondents expect their organizations to be disrupted, though the specific timing and magnitude of the expected impact varies. Respondents' reactions and the impact on their organizations have likely evolved since the survey was fielded, as the coronavirus outbreak and government and private sector responses have escalated significantly.
Of the responses, 62.7% said their organization had experienced a "somewhat negative" operational impact from the COVID-19 outbreak. Another 15.7% said that their organizations faced an "extremely negative" impact. Less than 6% said that the outbreak had a positive impact on their organizations from an operational standpoint.
To the extent the disruptions persist, a majority of respondents replied that their organizations are equipped to function for at least six months before a major disruption to their business occurs. The survey lists an inability to meet debt obligations, an inability to deliver agreed-upon services, and the loss of a major client or contract as examples of such a disruption. But another 7.9% of respondents indicated that a major disruption had already occurred, with 10.6% predicting that they could only go one month or less before a major disruption would hit.
Among the specific types of disruptions a majority of survey respondents said their companies are experiencing or expect to experience within the next three months are the following: reduced access to clients or prospects; lower employee productivity; an increased strain on IT resources; a loss or reduction in consumer demand; reduced or delayed access to services; and reduced or delayed supply of parts or materials.
A range of businesses by size and sector were represented in the survey, with 47.2% of respondents associated with organizations with up to 250 employees, 10.6% with organizations of between 250 and 999 employees, 15.3% from organizations with between 1,000 and 9,999 employees, 18.2% from organizations with 10,000 or more employees and the rest coming from governmental or educational entities. By industry, 29.1% of respondents work for entities in the business services sector, with 12.7% in software or IT services, 10.5% in manufacturing, 7.4% in finance, 6.8% in retail and the balance in a range of other sectors.
There was a more balanced dispersion of respondents by the revenue sizes of their organizations with each of the following bands accounting for between 14.3% and 19.0% of responses: Under $1 million; between $1 million and $9.99 million; $10 million and $99.99 million; $100 million and $999.99 million; $1 billion to $9.99 billion; and $10 billion or more.