The first US Zika travel advisory issued by the Centers for Disease Control and Prevention earlier this month is exposing a significant insurance coverage gap that puts hundreds of businesses on track for large losses.
Deterred by fear of the mosquito-borne illness, many travelers and part-time residents are canceling plans to visit the Miami area – and Florida in general – leaving businesses open to depressed revenue. At greatest risk is the state’s $82 billion tourism industry.
In two days, travel agency Ovation Vacations registered 38 canceled Florida reservations while Atlanta-based KK Travels Worldwide noted an uptick in canceled trips by pregnant women and young couples. Miami restaurateur Ivette Naranjo has also pointed to Zika as the cause of a recent dampening effect on her business.
“Usually we have from 250 to 350 people a night in the summer, and we had about 40 people come in,” Naranjo said of a recent Saturday night – her worst ever.
Yet traditional business interruption insurance policies require physical property damage as a trigger for coverage, and even more inclusive policies are contingent on official quarantines and other governmental restrictions. So what coverage – if any – responds to simple fear?
“Most civil authority coverage within business interruption property policies requires a covered or non-excluded peril and physical damage most likely to trigger coverage,” Marsh
said recently of the Zika virus. “However, some hospitality and gaming companies or others in related industries have a version of this coverage for ‘loss of attraction’ with notifiable disease as one of the triggers.”
Such a “loss of attraction” extension can be defined in many ways, and can be worded to indemnify against losses arising from a number of triggers – potentially including Zika. Yet “very few” businesses are likely to have it, an Insurance Information Institute spokesperson said, and brokers would likely have to revisit coverage in order to guarantee such protection.
At the same time, some major insurance companies are already writing Zika exclusions into certain policies. Several major business conferences in the Miami area have been canceled over Zika fears, and business travel is expected to suffer nearly as much as travel for pleasure – and potentially without redress.
Several insurance companies confirmed to Reuters that they are including exclusion clauses in cancelation coverage for events in Zika hot beds like Brazil. Such clauses can affect anything from rock concerts to trade shows and exhibitions.
“We do consider applying Zika-specific exclusions when we see events taking place in certain areas of the world like South America,” said Jeremy Cooke, contingency underwriter at ProSight.
In general, many insurers also include blanket exclusions for communicable diseases – a precaution borne of concern over the 2001 foot-and-mouth disease outbreak in Britain and SARS in Singapore and Toronto.
The only potential element of doubt for existing policyholders is how insurers – and perhaps eventual courts – define Zika. Much about the disease is still unknown, including whether it can be classified as a communicable threat as it is transmitted by mosquitoes.
“I personally would always view it as a communicable disease, despite some wordings referring to airborne pathogens or other characteristics that do not fit the Zika virus,” said Cooke.
Cover may still be available for Zika cancelations, but insurers say it would come with a “significant” premium. And even when in place, it’s likely unhelpful for the fear-based cancelation decisions seen in the US.
“It must be a necessary cancellation [for cover to apply],” said Elizabeth Seeger, contingency underwriter at Hiscox
. “An insured can’t choose to stop their event.”
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