News01 Jul 2015

Managing the threat of MERS

01 Jul 2015

Firms need to review their pandemic plans and protect themselves from potential liabilities in the wake of the Middle East Respiratory Disease (MERS) outbreak, which poses new challenges compared to the 2002-03 SARS crisis. With limited pandemic covers in the market, firms need to review their existing policies and processes to respond accordingly, according to experts at a recent seminar hosted by JLT and the Pan-Asia Risk & Insurance Management Association (PARIMA).

Prefacing the discussion, David Lum, Co-Chairman, JLT Asia & CEO, JLT Specialty Asia noted the Singapore Prime Minister’s comments that MERS would eventually hit Singapore. It would be hard for a firm to predict how it would be affected, and MERS may even be out of its hands if the disease was handled at the authorities’ level.  Currently there are very limited insurance options for such pandemic risks, however the industry, such as JLT was working with underwriters on new related products.  It remained to be seen how these would pan out.

While “history informs the present”, Steve Tunstall, PARIMA Secretary-General and Director of Tunstall Associates said that the rise of social media would be a key difference between today and SARS then.  Firms needed to think about how social media would affect their pandemic risk management.

Compared to SARS, MERS has a higher fatality rate of about 35% so far.  Craig Peterson, Regional Director, Risk Consulting, JLT Specialty Asia said that we have no control over the outbreak of such diseases, thus the focus is not how we stop, but how we react – this required a risk-based approach.  Companies should check the websites of the World Health Organisation (WHO) and their local governments on a daily basis for updates. 

If no guidance is forthcoming, firms should establish a pandemic risk assessment matrix to guide their actions to determine their business continuity management responses, which should include an emergency response to deal with immediate threats to life and property, followed by crisis management to front the media and shareholder concerns, then the necessary business recovery processes.  Mr Peterson emphasised that while governments in a country like Singapore were proactive in providing guidance, firms with international operations might need to step in and manage the situation themselves in countries with jurisdictions which were less so.

Due to landmark claims in Hong Kong’s hotel industry during SARS, Philip Ondaatje, Managing Director, Strategic Risk Solutions, JLT Specialty Asia, explained that the insurance industry realised the extent of exposures they had not modelled for back then, and have tightened many of their policies to exclude pandemic outbreaks completely today.   It is thus critical for firms to understand whether/if their existing coverage applies to such diseases. 

Ronak Shah, Regional Director, Financial Lines Group, Asia, JLT Specialty Asia added that companies should also pay attention to the indirect exposures for Directors and Officers, given liabilities which could arise when a corporate is not able to deal with a pandemic adequately.  He flagged six specific areas:

  • Business continuity - D&Os in firms, in particular public listed ones should ensure controls are in place and discussed at the board level with proper logs and documented, with consideration given to the wider supply chain and the potential impact for affected customers and suppliers.
  • Insurance – while there are currently limited pandemic exposure products, general liability, employers’ liability and contingent business interruption policies could still be triggered.  If procedures were not followed, shareholders could sue D&Os for not carrying out their fiduciary duties.  Thus it was important to ensure that there were no gaps among all of a firm’s policies.
  • Disclosure of risk factors – in particular for public companies, risk factors such as pandemic risk should be updated in filings with the Singapore Exchange.  No D&O should ever say that he is not aware of such risks as regulators would not accept such excuses.
  • Employee protection – There is typically bodily injury policy as part of wider general liability or CGL insurance cover.  Firms should ensure that their policies are coherent.
  • Following guidelines and regulations – Failure of D&Os to pay attention to WHO and government guidelines could bring liabilities.
  • Have a proper communications plan – A firm should have both good internal and external communications should a pandemic arise.

Mr Shah suggested that firms without D&O insurance should take out such policies, while those with D&O insurance in place should examine whether their policies were broad enough.

The next in the series of JLT-PARIMA seminars on MERS will be held in mid-July.

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