The New York State Department of Financial Services (DFS) has instructed insurers to submit details of business interruption policies that have been provided to insureds, as well as the coverage each policy offers regarding COVID-19.
The instructions were issued on March 10 to property and casualty insurers authorized in the state. Explanations regarding the commercial property insurance each insurer has written in New York as well as details of business interruption coverage provided were required to be submitted by this Wednesday. DFS considers commercial property insurance to include business owner policies, commercial multiple peril policies and specialized multiple peril policies, according to its instructions.
DFS issued the instructions in an effort to provide both parties to the insurance agreement with a base understanding on coverage issues in the wake of the coronavirus pandemic. This comes as businesses are forced to shut down and are increasingly interested in what coverage might be available to mitigate their losses, regulatory officials familiar with the matter told Insurance Journal.
“Given the potential impact of COVID-19 on business losses, particularly concentrated effects in local communities, DFS considers insurers’ obligations to policyholders a heightened priority,” DFS stated in its March 10 instructions.
The instructions required each insurer to provide to DFS the volume of business interruption coverage, civil authority coverage, contingent business interruption coverage and supply chain coverage the insurer wrote that has not lapsed as of March 10, expressed in amounts of direct premium, policy types and numbers of policies written of each type.
Each insurer was also required to examine the policies it issued and explain the coverage each policy offers in regard to COVID-19, both presently and in the future if there is potential for COVID-19 coverage as the situation could develop. For each policy type, insurers were asked to prepare information in a clear and concise explanation of benefits suitable for policyholder review.
The instructions then asked insurers to send the explanations to each of their policyholders for the applicable policy types as well as to DFS, along with a representation that the explanations have been provided to policyholders.
New York isn’t the only state that has asked insurers to examine their business interruption policies in light of the COVID-19 pandemic.
Insurance Journal reported this week that in New Jersey, a bill has been proposed aiming to create business interruption insurance coverage for COVID-19 related claims despite virus exclusions in many policies. The bill has faced criticism from the insurance industry and was held for a vote in the New Jersey Assembly on March 16. It was also not taken up for a vote in the New Jersey Senate yesterday as state Legislators say they are working to make changes and finalize it.
Clifford Rossi, professor for the Robert H. Smith School of Business at the University of Maryland, said he expects other states will follow in New York and New Jersey’s footsteps.
“Other progressive-minded state legislatures are likely to look at what New York and New Jersey is doing with P/C insurance BIC provisions,” he said.
Alexandra Roje, partner in Lathrop GPM’s insurance recovery practice, agreed, adding she believes other states should follow suit – and soon – in order to push back against the widespread impact of this pandemic.
“They will, and they should do so soon, if they have any hope of stemming what may become a deluge of bankruptcies, job losses and closures,” she said, adding that she believes taxpayers, insurers and policyholders will need to all share in bearing the risk from COVID-19.
“The impact and burden of COVID-19 on the U.S. economy is so large and so ubiquitous that it simply cannot be shouldered by any single source,” she said. “As a result, the question is not whether the burden is better handled by one entity or another; it is whether it can be handled at all. To that end, everyone, including insurers, needs to participate in the solution.”
Rossi said, however, that he doesn’t expect insurers to relax business income provisions in their policies going forward in light of COVID-19.
“Generally speaking, BIC provisions provide coverage when there has been a covered physical loss or damage associated with a covered property,” he said. “Much like any other hazard such as natural disaster, P/C insurance underwriting and pricing is determined by the frequency and severity of risks on which they are writing insurance. The unprecedented nature of COVID-19 would in my opinion retard rather than raise P/C insurers’ appetite to relax BIC provisions going forward or at least at greater costs to businesses desiring that coverage.”
Jason Ernest, CEO of professional trade association Insurance Agents & Brokers, said this is because it’s difficult for insurers to predict the extent of impact for a virus of this type, and therefore, price the risk accordingly.
“When insurance is put in place, there’s a lot of data that predicts what’s going to happen, and it is priced accordingly,” he said. “If these types of [virus-related business interruption] claims were to be considered, the pricing would just be way out of line for what an average consumer would be able to afford to take on a risk of this type. So while we’re sympathetic to the community, we support the carriers in saying that this was never intended.”
For right now, he said he believes agents have done well explaining business interruption coverage to policyholders even prior to this pandemic.
“We’ve been talking to our members, and there isn’t a whole lot of shock from the business community that this isn’t covered,” he said. “It’s not like people bought policies expecting there to be coverage for this. We are extremely sympathetic to these business owners…but I think agents probably had been doing a good job in explaining [the coverage.] We’re three months into this, but currently what we’re hearing out there is business owners are accepting that policies just don’t cover a situation like this.”
Ernest added it is possible insurers will use data from the current pandemic to offer separate coverage for virus-related business interruption in the future.
“When you see something like this, it opens some eyes,” he said. “You always think of these things as just not possible. But now that this has happened, and with some indications that this may be more commonplace in today’s world, insurance can come in and specify a coverage for it. With proper data, the industry can put coverage in place, and they can properly price it. I would expect to see a lot of discussion about this and the potential in the future to offer coverage for exactly this type of situation.”
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