Flu Pandemic: the risk to UK businesses

The global flu pandemic has received a lot of publicity in recent months. Over the weekend it tragically claimed its first mortality in the UK (albeit that initial reports suggest that underlying health problems may have contributed to the death) and the WHO has recently upgraded the alert phase reached to level 6 - the highest pandemic alert phase reflecting the level and extent of the spread of the virus.

Although it is impossible to predict the impact of the virus, there is significant concern that the current pandemic could turn out to be more wide spread than previous pandemics over the last century. There must be a risk that the effects of a pandemic could push some businesses, which are struggling through the economic downturn, over the edge. This article is the first in a series of articles by the UK Pandemic Advice Team at CMS Cameron McKenna in which we consider some of the issues faced by companies in dealing with the fall out of the influenza pandemic. In this article, we focus on some of the background information and consider the insurance implications of the pandemic for both insureds and insurers.

Some Figures

The UK government’s national framework for responding to an influenza pandemic has been based on estimated figures for potential losses (both in human and financial terms) in the event of the pandemic striking in full force. For a copy of the national framework, please click here.

These planning assumptions are set out in the Cabinet Office’s document entitled "Overarching government strategy to respond to pandemic influenza". For a copy of this document, please click here.

Amongst other things, the government has assumed the following in the event that the influenza pandemic strikes:

1. initially, the pandemic may last 3 - 5 months, with the potential for subsequent waves which may be weeks or months apart;

2. a cumulative clinical attack rate of up to 50% of the population, spread over a series of waves;

3. up to 4% of those may require hospital treatment, with a 2.5% mortality rate, which equates to 750,000 people over a 15 week period;

4. up to 50% of the working population will require 7 - 10 days off work, with up to 15% - 20% off during the peak period of two to three weeks;

5. assuming a 25% illness-related absence from work during the pandemic (half of the expected level), the country’s GDP for the year could be reduced by between £3 billion and £7 billion.

As of 16 June 2009, the UK government reported that there had been 1461 cases of H1N1 influenza ("swine flu") in the UK. These have so far been relatively localised. It is certainly to be hoped that the government’s planning assumptions are far more pessimistic than the reality. That said, it is clear that there is a real risk that the impact of any influenza pandemic will be very serious, both on the health of the population and in terms of social and economic disruption.

Business Continuity Plan

The starting point for any business should be its business continuity plan. Various guidance documents have been produced on Business Continuity Management (BCM), for example by the Civil Contingencies Secretariat. These cover, amongst other things:

1. understanding your business;

2. determining the BCM strategy, to include things such as redeployment of staff, process mapping, relocation of sites, rerouting technology, dissemination of information and sourcing potential additional suppliers;

3. developing and implementing the BCM strategy;

4. exercising and maintaining the BCM strategy; and

5. embedding the BCM culture into your organisation.

Most companies will no doubt have a BCM strategy in place already, although it may be necessary to adapt this as the full effect of the pandemic becomes apparent. It is expected that businesses with a BCM strategy in place will have a better chance of working through the pandemic and of recovering quickly afterwards.

Insurance issues

Many relevant insurance policies - for example personal accident, travel insurance, contingency insurance and some business interruption cover - exclude liability arising out of an influenza pandemic. This may be by way of a general exclusion for all communicable diseases. Or it may be more specific. The exclusion may, for example, identify the types of illness for which cover is excluded.

Any pandemic is likely to bring into focus how those clauses should be interpreted. Will they cover the H1N1 virus (or indeed an mutation of that strain) which appears to have come from swine flu? Are they ambiguous, in which case they may be construed against the person who drafted the clause or the person who is seeking to rely on the clause? Or are they clear one way or another?

Insurers will want to be clear as to what their cover actually provides. Insureds will want to make sure they have policies which afford them the cover they require. The London insurance market is the most flexible and commercial insurance market in the world. Brokers and insurers alike are well placed to respond to a potential crisis of this nature. Where cover for losses arising out of an influenza epidemic are excluded, cover can be obtained through either a buy back into the existing insurance policy or a bespoke insurance policy to cover the effects of the pandemic.

At CMS Cameron McKenna we have a genuine cross service capability which can be used by businesses to advise on ways to avoid legal issues when planning for the effects of a pandemic, as well as advising on potential pitfalls if the pandemic really bites. The team is made up of experts in the field of employment, immigration, data protection, insurance, litigation, corporate, property, financial services, outsourcing and commercial law, amongst others.

For information on our key contacts, please see our UK Pandemic Advice Core Team contact sheet.