PAGE Blog Business Weekly Magazine
The coronavirus has presently affected more than 100,000 persons worldwide. This fast widespread of the virus impacts several business sectors including that of insurance. The pandemic won’t be affecting life insurance in 2020 and as per Moody’s agency estimates, the impact of the pandemic on global reinsurers will be limited, i.e. the consequences will only be significant only at very high levels of gravity. For property and casualty insurance, the impact of coronavirus will be minimal since standard insurance policies do not cover communicable diseases. However, insurers covering the cancellation of high magnitude events e.g. the Olympic Games are more likely to be affected. With regard to the coronavirus crisis, it is on the financial level that the global insurance market will be affected. On another level, an economic slowdown is already predicted by the Organization of Economic Cooperation and Development (OECD) while growth forecasts for 2020 are down by 17%, from 2.9% to 2.4% worldwide.
The shipping industry is likely to be impacted in a number of ways: not only through disruption to voyages to and from China, but also from delays in other countries as a result of quarantine and port checks due to cases, or suspected cases, of the coronavirus amongst crew and passengers on board vessels. Delivery of cargo may be delayed, or cargo may need to be discharged at alternative or interim ports, with expensive consequences and significant logistical and insurance implications. The construction of newbuilding vessels and scheduled ship repairs and upgrades are being delayed as a result of the impact of outbreak on the Chinese workforce, which could adversely affect operating schedules. There have already been press reports that Chinese energy companies may be considering rejecting scheduled LNG cargoes claiming force majeure as national demand weakens.
As well as investigating the contractual implications, effective work health and safety systems and strategies for workers, sites and the wider community should be put in place to preserve business interests and to ensure the safety of workers while plans for business continuity should also be implemented to allow for the recovery of operations if required. These plans will need to be developed globally, particularly in the maritime industry, where strategies around the safety of crew and passengers aboard vessels and the potential impact on any destination ports of outbreaks of the virus during voyages will need to be addressed.
Practical steps
Risk management measures which corporates should consider include:
- Inserting express infection disease/epidemic wording into new contracts (and amending existing contracts if possible).
- Checking the terms of existing contracts for protection, including force majeure clauses.
- Check insurance arrangements – especially where cargo is delivered to an interim port or to some other port.
- Conducting risk assessments, considering factors specific to suppliers and working conditions.
- Keeping up-to-date with details of the affected areas through WHO’s Disease Outbreak News.
- Ensuring proper training and providing information and education on the virus for the workforce including how the virus spreads, how to prevent the virus in order to prepare workers and how to dispel myths, fears and misconceptions.
- Auditing suppliers and reviewing their respective work health and safety systems and policies, especially relating to virus and disease control, ensuring they are up to date and appropriate, or requiring compliance with applicable company policies on the subject.
- Engaging with safety managers and ensuring there is continual and ongoing communication with workers, providing updates on the outbreak and training refreshers and drills as and when required.
The prevailing situation in China can be of huge benefit for the local manufacturers in terms of reduced competition and control over pricing, AKD believes. Citing this advantage in the context of the fertilizer sector, the report has picked FFBL, FATIMA, ICI and LOTCHEM as the major beneficiaries from the unfortunate circumstances in the neighboring country. On the contrary, Pakistan may see itself suffering in terms of lost imports, as China has been and continues to be a major supplier of goods and services to the country. As a result of this temporary disruption in trade, sectors such as Cable & Electrical and Auto Supply Chain may suffer the most as they rely on various machinery, electrical goods, semiconductors, AC parts and compressors imported from China.
Last but not the least, two of the most important Chinese avenues for Pakistan, i.e. BMR and CPEC, may witness serious commotion as the supply of major components needed for these projects may face an indefinite delay. While Pakistan has the option of importing equipment from alternate sources, such as the EU and the Far East, but it wouldn’t be possible without incurring significant cost overruns.
