Bird Flu and Insurance ... are you covered?

Avian flu spreads business continuity fears

18 December 2007 It is estimated that UK poultry farmers stand to lose as much as  £30 million in a major outbreak of avian flu.In the run-up to Christmas, peoples minds turn to festive feasts and celebration. But following a second outbreak of the deadly H5NI bird flu at a turkey farm in East Anglia recently, many business managers have more serious issues than what people will be serving up on the day. It is estimated that UK poultry farmers stand to lose as much as  £30 million in a major outbreak of avian flu, even after they have received government compensation.
 

Now, businesses along the supply chain need to think about their exposure to avian and other livestock disease, insurers are warning. Other areas impacted by the recent foot and mouth disease outbreak besides agriculture, include auction markets, slaughterhouses, livestock exporters, food processors and road hauliers. In 2001 the total losses from this group were  £170 million. Industries that supplied the agriculture and food industry lost another  £85 million in that year. It is estimated that tourism lost between  £2.7 billion and  £3.2 billion.

According to broker Marsh, an incident occurring at or near unrelated premises could cause either employee absences or loss of customers through fear. The physical intervention of a competent local or civil authority ordering closure of insureds premises could also have the same effect. But can insurance help? Most businesses carry property insurance that includes cover for business interruption (BI) - but it may not help in these circumstances. Standard BI cover is only triggered if there is loss or damage to insured property at the insureds premises.  “Businesses can buy BI extensions that relate to outbreaks of infectious diseases, but only related to, and triggered by, notifiable diseases. But even then the triggers, limits and periods of indemnity for such covers are very narrow and can be limited to an incident on the insured's premises only" says Andrew Keefe, Senior Vice President in global placement for Marsh.

Today, the maximum sub limit available on such extensions would typically be  £5 million, he says. As outbreaks of livestock diseases like foot and mouth, bluetongue and avian flu multiply, companies have to include the potential fall-out for their businesses in their risk management routines, experts say. For larger insureds, such as supermarket chains, bird flu and foot & mouth are business continuity planning issues rather than insurance issues, Mr Keefe says.

Companies can plan for events that impose constraints on travel, for example.  “Of course there is an expense attached to that, but it is not covered in standard BI policies, so it goes back to good business continuity planning" Mr Keefe points out. Smaller businesses, however, dont always have the resources or expertise needed to put together a comprehensive business continuity plan and they will instead look to their insurers for a solution.

There is a growing undercurrent of demand from certain sectors for BI coverage that would respond to such events, Mr Keefe confirms.  “A number of new products are already available in the Lloyds market targeted at farmers and their wider exposure to livestock disease, so awareness is growing" he says Dan Trueman, intangible assets risk underwriter at Lloyds insurer Kiln, says there may be limited cover available for business interruptions triggered by an event outside the insureds control.  “But there needs to be a great deal more analysis done in this area.

“Traditionally these non-physical damage based coverages have had a very limited [insurance] market" Mr Trueman says.  “It is doubtful this will change until the area is better understood. END

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