While legislators in Washington and states try to fashion financial relief for businesses interrupted by the public health actions related to coronavirus, outside pressure is mounting on private property/casualty commercial insurers to do more than explain why insurance coverage is mostly not available.
A group of 18 members of Congress has asked the property/casualty insurance industry to pay business interruption claims, even where their customers’ policies exclude such coverage. Insurers declined, telling lawmakers that most business interruption policies “do not, and were not designed to, provide coverage against communicable diseases such as COVID-19.”
However those same insurers hinted they may be open to helping in some other way. “The U.S. is in the midst of a national crisis that will require federal assistance that provides funding directly to those American individuals and businesses most in need. Our organizations stand ready to work with Congress on solutions that provide the necessary relief as soon as possible,” continued the letter from the industry that knows how to send out checks. Insurance trade groups have not yet disclosed any details of what they have in mind.
Jon Bergner, assistant vice president of public policy and federal affairs for the National Association of Mutual Insurance Companies (NAMIC), put the calls for help in perspective.
“Yes, there are a lot of nascent ideas being floated as we all try to get a handle on responding to COVID-19. NAMIC members are facing many of the same challenges as the entire business community, who are also NAMIC members’ policyholders,” he told Insurance Journal.
He said the industry has called on Congress to provide direct federal assistance to prevent mass lay-offs or business failures – as soon as possible— but cautioned about complicating delivery of assistance with more administration.
“Speed and efficiency are top priorities when it comes to providing emergency aid, and all the more so given the unprecedented scale of this crisis. Involving the insurance industry as an added layer of administration would only serve to make the system slower, even under the best of circumstances, and should be avoided at this point,” he added.
Sean Kevelighan, president and CEO of the Insurance Information Institute (III), told regulators and an audience of 2,500 on a National Association of Insurance Commissioners web conference, that while there is now pressure for insurers to cover business interruption resulting from a pandemic, insurers have investigated and modeled pandemic scenarios as they do other catastrophes and found it is not feasible to underwrite the risk in a way policyholders would be able to buy.
“It is important to appreciate that as much as this is a catastrophe of historic magnitude, there are more on the horizon—hurricanes, wildfires, floods—and we must remain prepared in the way that we have long-planned, so again, we can continue act as the financial first responder that we have been for several centuries,” Kevelighan stated.
David Sampson, president and CEO of the American Property Casualty insurers, told the same conference that it is important to defeat efforts to “imposed retroactive coverage.” He stressed that the current surplus funds and loss reserves of the industry are there to pay claims under policies as they have been underwritten and not to pay claims not anticipated.
Sampson said business interruption issues are at such a scale in this pandemic that a federal solution is needed. He said insurers have been in talks with the White House and Congress on what that response should look like and what business insurance coverage might look like in the future.
Elsewhere, financial analysts have expressed uncertainty about how coverage questions in the area of business interruption will play out.
“There may be exclusions, but there may very well be different interpretations around those exclusions in the U.S. and elsewhere,” said Stephan Holzberger, chief rating officer of AM Best, announcing that his organization will be developing a pandemic stress test for the insurers it rates.
The original property/casualty insurance industry reaction that business interruption losses may be modest may have been too optimistic, according to Meyer Shields, KBW’s insurance analyst. He said he believes that the “combination of an aggressive trial bar, legitimately suffering insureds, and potentially ambiguous policy language” could contribute to loss exposure for the industry.
However, to the extent that the insurance industry ends up paying business interruption losses due to the coronavirus, more of those losses are likely to be paid by specialty insurance carriers than standard carriers, Shields added.
“We think it’s far too early to estimate industrywide (much less individual company) Business Interruption losses, but at this point, we expect some losses to materialize, and if so, they’ll probably disproportionately impact specialty rather than standard insurers, since the latter group’s policy language is typically subject to regulatory approval, and is usually more consistent, less customized, and hence less prone to including unintended coverage,” he concluded.
A seemingly more damaging assessment for commercial insurers came from the chief executive of an insurtech. Chris Cheatham of RiskGenius, in a new publication, described the possibility that the absence of language explicitly covering communicable disease claims or exclusion clauses in commercial insurance policies will put more carriers on the hook to cover business interruption and other claims. RiskGenius, which specializes in analyzing insurance policy language, estimates that roughly 80 percent of commercial insurance policies are “silent” or vulnerable on communicable disease coverage.
In a post on the RiskGenius Insurance Prospectus blog, Cheatham notes that while many attorneys believe other provisions in a Silent COVID policy would exclude coverage, such as the need for physical damage to trigger coverage, his team believes this issue may arise in claims and litigation.
“While insurance experts would be correct in asserting that insurance policies silent on communicable diseases traditionally do not cover communicable disease losses, we are focused on what may occur with unexpected court rulings or new laws and regulations,” he wrote in an email newsletter about the blog item. (See related article, “How Silence May Impact Commercial Insurers on COVID Cover“)
In a separate development, a restaurant (Oceana Grill) filed the first lawsuit on a business interruption coverage matter in a civil district court in New Orleans Monday, asking a state judge for a declaratory judgment that its all-risks policy from Lloyd’s of London will cover its damages if ordered to close by civil authorities in response to the coronavirus.
Also, Rep. Maxine Waters (D-Calif.), chair of the House Financial Services Committee, issued a memorandum with consumer relief and economic stimulus ideas that include the Pandemic Risk Insurance Act, which would create a reinsurance program similar to the Terrorism Risk Insurance act for pandemics, by capping the total insurance losses that insurance companies would face. This was a request from the National Retail Federation, according to the memorandum.
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