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Middle East | Update | March 2020
COVID-19 (coronavirus) was first reported as an emerging new virus in December 2019, following which it has spread globally across the world. On March 11, 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organisation, acknowledging the possibility that the virus will affect a much larger number of people across a large geographical area.
Much has been written about the impact of COVID-19 on global businesses and the effects of the global supply chains being disrupted, as well as the legal implications of this. The global stock market has suffered depreciation and volatility in the last few weeks and businesses that were already in financial distress have been pushed into insolvency.
The price of oil has dropped further significantly in recent weeks. Middle East businesses are fast adapting to remote working and sectors such as the airline and hospitality industries are heightening the precautions they take.
Middle East Insurers will be aware that the UAE Insurance Authority issued a circular (No 3 of 2020) which set out clear guidance on the measures the UAE Insurance Authority expects the UAE Insurance sector to take: for example, that a disaster recovery plan should be in force to manage COVID-19 risks and that insurers should look at flexible working measures to ensure employee safety.
In this article, we focus on the impact of COVID-19 on insurance risks in the Middle East. COVID-19 presents a significant concern for Middle East insurers, firstly because insurers’ own business is impacted and secondly, because there is a likelihood of increased insurance claims and issues in this region, which now look imminent.
Several countries in the region, including the UAE and Saudi Arabia, have put, or are putting, into force a mandatory health insurance regime in which private sector employers must procure health insurance for their employees. Further, many employers in the region provide life insurance as part of remuneration packages for ex-patriate employees. Life and health insurers could see an increase in the number of claims where individuals require medical attention and treatment, and in the event that fatalities occur.
With an increased use of hospital and medical facilities, there is a possibility of increased medical malpractice claims against healthcare institutions or medical professionals. Medical malpractice liability insurance is one of the few compulsory forms of professional liability insurance in certain countries in the Middle East, such as the UAE and Saudi Arabia. Similarly, the healthcare sector could face claims from their own employees if they become infected during their employment. Healthcare insureds may seek to notify claims to their employment practices liability (EPL) or workers’ compensation insurers.
Businesses whose operations are impacted by COVID-19 may look to their insurers for BI (business interruption) cover. GL (general liability) insurers may see an uptake in claims against their insureds, such as businesses in the hospitality, entertainment and travel sectors which cater to a large number of people in close proximity.
Finally, company boards will need to be prudent in managing this pandemic and ensure that they have a well-planned strategy for minimizing business disruption, its impact on revenue and disrupted share prices. D&O liability insurers in the Middle East may see an increase in claims where the legislation in countries across this region, including Bahrain and the UAE, allow claims against company boards to be made for general “mismanagement.” D&O insurers writing Saudi Arabian risks need to be aware of the capital markets regime in Saudi Arabia, where the capital markets regulator is active in assessing listed companies and has in recent years started high profile investigations against listed Saudi Arabian companies and their boards of directors for inaccurate reporting of their financial positions within financial statements. D&O insurers writing Saudi Arabian risks will be aware that a new securities class action regime recently came into force in Saudi Arabia, which is the first of its kind in this region and could result in an increase in multi-investor securities claim relating to a drop in share prices if the company is impacted by COVID-19.
Finally, as businesses face disruption, there may be an increase in financial difficulties and insolvencies in the region. A new insolvency law was passed in the DIFC in 2019 and a new insolvency law came into force in the UAE in 2016. Credit insurers in the region are likely to see an increase in claims where payment defaults and insolvency issue increase, both in connection with Middle East defaulting customers but also global customers who have contracted with Middle East businesses and may be suffering from the global ramifications of business downturn due to COVID-19.
There are numerous insurance considerations which are relevant to insurers dealing with Middle East risks and which are specific to wordings issued in this region, as well as the way in which liabilities typically arise. An increase in insurance claims and exposures is imminent given the nature of COVID-19, and insurers would be advised to start reviewing their wording and likely positions on different policies in advance of a significant uptake in claims. Those making claims will need to consider how coverage may apply to their circumstances, bearing in mind that the policy wording will be key and that the duty of mitigation would arise to every insured contemplating a claim.
Should you have any queries or would like to discuss the matters covered by this note, please contact the Norton Rose Fulbright Middle East Insurance team.
Nina Varumo is a freelance portrait and documentary photographer based in Stockholm. A recent project of hers Kvinnor till sjöss (‘Women at sea’) is on ongoing photo series highlighting the working life of female seafarers in order to change the stereotypical image of what and who is a seafarer.
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