Potential impact of Corona

Adnan Malik

Covid-19 is proving to be one of the greatest health emergencies of human history. It is affecting individuals and businesses, and its impacts are being predicted to be much lasting than the global recession of 2008. Here, it is to mention that it started from China and within no time Europe and the USA became its epicenters, whereas it has also affected the Asian countries, including Pakistan but in lesser severity, so far, and that’s why the world is responding in different ways to this global pandemic. 

Regarding takaful and insurance, individuals are expected to buy more health insurance, especially the coverages against fatal diseases with sufficient hospitalization limits for ICU treatment. This trend was noted after the outbreak of SARS in 2003. The demand for life coverage is also expected to increase which provides financial compensation when the covered client dies. 

Some companies in Pakistan are offering free-of-cost additional compensation, if any of their covered clients dies due to Coronavirus. Workers may be claiming against their workmen compensation coverages which normally cover any physical damage due to work related hazards. Now, does this coverage provide any compensation, it is yet to be known. Due to pressure on hospitals for advice and treatment, the trend of tele-health consultancy may increase which seems to be a useful outcome  

Similarly, businesses are also facing many problems due to mandatory or voluntary closures, lockdowns, low sales and discouraging layoffs by the governments. Many people are curious about the compensation to such businesses under the business interruption coverages. Business community is expecting takaful and insurance companies to pay claims in such hard times, but, business interruption coverage normally covers income losses due to physical damage to the businesses assets and operations and excludes epidemics etc. Most of such exclusions were added after SARS outbreak back in 2003.

In this regard, the government laws would compel the companies to pay all or part of such losses but whether, insurance and takaful companies considered pandemics while underwriting and deciding premiums for such losses. If companies are forced to pay such claims, they may become insolvent, if any other natural disaster like hurricane, floods and earthquake hit the area. Moreover, received premium actually covers such disasters but Covid-19 was hardly anticipated. Few companies in Pakistan also provide business interruption coverages and it will be interesting to see how matters proceed. 

Takaful and insurance companies are believed to be hit very hard with Corona. At one side, due to business closures, their collected premium is falling down and claims are increasing. Event cancellations can also result in loss of large insurance businesses. For instance, around 2 billion US dollars coverages were expected to be sold out during Tokyo Olympics 2020, which are postponed, unfortunately.  

On the other side, return on investments is falling down due to market volatility and cuts in interest rates which are hampering the ability of the companies to honor claims in long term but the same threats can be taken as opportunities through tailoring Covid-19 related coverages and increasing its sales through sensitizing the people, whereas paying claims increases revenues for companies, if they generate sufficient premiums. 

So, it is a very difficult time for all the families, businesses, companies and governments and it seems to be a test for insurance and takaful companies that how they handle clients’ queries and their claims. One of the important lessons from this pandemic for insurance companies and businesses, is to get digitalize and be more responsive and accommodating towards clients. 

The writer works as a Lecturer and Industry Chair at the Centre for Excellence in Islamic Finance, (CEIF) Institute of Management Sciences (IMSciences), Peshawar. He can be contacted at: adnan.malik@imsciences.edu.pk.

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