Efforts to Develop COVID-19 Damage Compensation Insurance... Effectiveness in Question

Consideration of Adding Epidemic Coverage to Corporate Business Interruption Insurance

On the 22nd, as social distancing measures to prevent the spread of the novel coronavirus infection (COVID-19) continue, a store is closing down in a food street in Mapo-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Oh Hyung-gil] As social demands grow to compensate self-employed and small business owners for economic losses caused by COVID-19 quarantine measures, the insurance industry is facing urgent pressure. While adding infectious diseases like COVID-19 to business interruption insurance that compensates for losses due to business suspension is being considered, doubts about its effectiveness are already being raised.

This is because as political circles rapidly discuss systems to compensate business losses through government funding, the role of private insurance is inevitably shrinking.

Another concern is that most policy-based insurance products introduced to fulfill the public social safety net function in the private sector have been largely ignored by subscribers, resulting in low subscription rates. Overseas, there have even been rulings that administrative measures such as business suspension do not qualify as conditions for insurance payouts, and insurers have no obligation to pay claims.

According to the insurance industry on the 29th, the Korea Insurance Development Institute has begun discussions on developing business interruption insurance that also covers infectious diseases like COVID-19. Business interruption insurance is a product that compensates companies and small business owners for physical damages caused by natural disasters, fires, theft, etc., as well as loss of income due to business suspension.

Until now, damages caused by infectious diseases were not compensated, but considering quarantine measures, it is expected that a basic infectious disease risk assessment model will be developed and compensation expanded.

The problem is the low subscription rate. As of 2018, the number of business interruption insurance subscriptions was only 1,458, which is extremely low considering there are 6.25 million active businesses. This is because it is rare for businesses to subscribe annually to insurance for natural disasters or infectious diseases that are difficult to predict but can cause massive damage if they occur. This is a chronic problem of policy-based insurance.

Low Subscription Rates for Policy-Based Insurance... Issues of Overlapping Financial Support Compensation

Policy-based insurance products with a public interest nature, such as crop disaster insurance and wind and flood insurance, have been largely ignored by consumers.

As of the end of 2019, the subscription rate for crop disaster insurance was only 38.9%. Subscription rates for some crops such as tea (9.3%), chili peppers (5.9%), grapes (5.3%), corn (3.4%), and mushroom crops (3.0%) were below 10%. The effective subscription rate for wind and flood insurance, which covers home flooding, decreased from 22.06% in 2017 to 19.46% last year.

Although these policy-based insurances are subsidized by the government or local governments, lack of promotion, interest, and proper education about disaster insurance systems are cited as causes.

There are also variables that could reduce COVID-19 risk before the insurance is launched. The Development Institute expects the insurance to be launched at the earliest by the end of this year. The government plans to start vaccinations next month, and the first domestically developed COVID-19 treatment by Celltrion is reportedly close to approval. This suggests that the spread of COVID-19 could significantly decrease before the insurance launch.

In particular, the ruling and opposition parties are reviewing financial support measures to compensate small business owners affected by COVID-19. If financial support is provided, even if insurance is introduced, the necessity to subscribe will inevitably decrease. An insurance industry official said, "Policy-based insurance to compensate for unexpected damages has its own role," but added, "Ways to encourage insurance subscription should also be considered."

This content was produced with the assistance of AI translation services.