How P/C Insurance Industry Can Maximize Its Response to Coronavirus: Crisis Manager

By | April 13, 2020

“I’m shocked, just shocked that you’re suggesting that during a crisis that insurance companies might in fact be considered the villains. I’ve never heard that before.”

That’s Richard Levick speaking. Levick, who has a public affairs, crisis and reputation risk management firm named LEVICK, also has a sense of humor. His corporate slogan is: “Fixing the Impossible.”

As Levick sarcastically suggests, while the property/casualty insurance industry is experienced in helping during disasters such as hurricanes, floods and wildfires, it is also accustomed to taking some heat during these crises. Sometimes it’s legitimate criticism but other times it’s insureds, lawyers or elected officials looking to insurance to remedy situations that insurance does not cover.

So it is not surprising to find the industry currently dealing with expectations in several quarters that it will fix the impossible situation people are facing with the coronavirus crisis and the economic shutdown. The industry has been here before.

Auto Insurers Offering $8-$10B in Discounts in Coronavirus Relief Effort

The group of property/casualty insurers offering auto insurance premium discounts to recognize that insureds are driving less during the coronavirus crisis continues to grow, and now includes all major auto insurers. State Farm and Nationwide late last week joined the ranks of the top 10 auto insurers providing relief that already included Geico, Progressive, Allstate, USAA, Liberty Mutual, Farmers, Travelers and American Family. In addition, since late last week the following insurers have also announced offers: Erie, Hanover, CSAA, MetLife Auto & Home, Mercury, Plymouth Rock, NJM and Union Mutual.

According to the Insurance Information Institute, these and other auto insurers have announced refunds, discounts, dividends and credits totaling $8.1 billion. III estimates that this total will reach $10.5 billion as more auto insurers announce their offers. Learn more.

“I think that insurance companies know this. They know that there’s always a challenge, a disconnect between an insured when they find out that something is not covered as they thought it might be,” said Levick.

LEVICK, with offices in New York and Washington, D.C., works with more than 14 different insurance organizations, helping them prepare for and navigate perils from natural disasters to cyber emergencies to reputational harm.

Little Coverage

In this current disaster, insurers are under fire for insurance policies with too little to offer. There are huge industries including airlines and hotels, and thousands of small businesses including restaurants and retail shops across the country, upset that their policies do not cover their business losses. They have some lawyers and politicians on their side.

Insurers have been out in front explaining that even for those that have business interruption, event cancellation or other insurance, their policies most likely do not cover their losses related to the coronavirus shutdowns because there is no damage to property or most have exclusions for viruses.

Insurers are having to explain themselves to lawmakers in various states that are weighing proposals to force insurers to pay business interruption losses the insurers never anticipated under policies, as well as to restaurants and other businesses claiming in lawsuits that their policies should cover their losses because they lost business due to action by a civil authority.

President Donald Trump himself has weighed in against insurers and said he would like to see insurance companies pay for business losses where policies do not have virus exclusions. Businesses have been “paying a lot of money for a lot of years for the privilege of having” business interruption insurance, but “when they finally need, the insurance company says we are not going to give it,” Trump said. “We can’t let that happen.”

Trump’s views may have been influenced by celebrity chefs who complained to him earlier this month. Louisiana attorney John Houghtaling II is behind lawsuits by several restaurants claiming business interruption losses and he is leading the public attacks on the industry. “To avoid payments for a civil authority shut down the insurance industry is pushing out deceptive propaganda that the virus does not cause a dangerous condition to property,” Houghtaling said in a press release. “This is a lie, it’s untrue factually and legally.”

The industry estimates that losses for all small businesses (not just businesses with insurance) alone could be as much as $400 billion a month.

Couples with wedding insurance and tourists with travel insurance have also expressed anger over their lack of coverage.

KBW Kudos to Allstate

At least one insurance financial analyst thinks the auto insurance discounts being offered by insurers are a good idea.

KBW’s Meyer Shields praised Allstate for being the first to come forward after the insurer announced it will return about $600 million to customers in recognition of much lower-than-expected auto claim frequency.

“Despite the near-term financial hit, we think Allstate’s voluntary consumer-friendly initiatives will foster well-deserved goodwill that should generate considerable shareholder value over time,” Shields wrote in an analyst’s note.

He said he expected that most other personal auto insurers to would announce similar plans in coming weeks, although he said he is less certain that multi-line insurers will follow because any lower personal auto losses will probably be offset by other lines’ higher losses.

Regardless of what other insurers do, Shields suggested that “current and future customers will particularly respect Allstate’s first-mover status.”

On the plus side, workers’ compensation may help in some cases where health care and other essential workers contract the virus. Most of these employees will have to show they caught it while at work and not elsewhere.

Insurers have been asked to discount auto insurance premiums given that people are driving less under shelter-in-place orders. This is one area where insurers have been able to respond. Allstate, American Family, Geico, Travelers, Liberty Mutual, Progressive, Farmers, State Farm, Nationwide, Hanover, NFP, USAA, CSAA, Erie and Plymouth Rock are on the growing list of insurers that have collectively forgiven billions of dollars in premiums for drivers. A number of insurers are also giving free insurance to those now using their cars for commercial deliveries and most are relaxing payment and cancellation terms and deadlines.

The industry has also worked the political front. P/C insurance trade groups have been proactive in explaining and defending their position on business interruption. They have succeeded thus far in redirecting the search for financial solutions away from their own coffers and towards Congress, which has already passed a $2.2 trillion relief measure and is working on another. Furthermore, the industry has volunteered to be an integral part of the process of getting relief into the hands of families and businesses in need.

What More to Do

Insurance Journal asked Levick how the industry might continue responding to the disappointment and anger while also protecting its reputation, relationships and solvency in an environment where insurance is not helping as much as many people want right now.

What more should carriers and agents be doing?

In a phone conversation early last week, Levick shared ideas for how the industry can make the steps it takes most effective.

“They know they’re going to be the scapegoats. They know they’re going to be villains here, and so the question is not how do we eliminate it, but how do we reduce it, and that I think should be the goal with insurance companies,” Levick said.

The things the industry is doing — including discounting premiums, expanding coverages, relaxing billing, targeting charitable donations and engaging in politics— align with Levick’s experience and thinking on what can be done beyond saying, “We’re sorry.” They reflect the need to do something.

“The Marines, what do they say? When faced with the impossible task, you break the task down to its smallest elements. Unzip the sleeping bag, put your left leg out, put your right leg out, put on your left sock, put on your right sock, put on your boots, tie your boots, why? Because a crisis is paralyzing, it’s overwhelming,” Levick said.

The fear that people are understandably feeling now serves a purpose. “It gets you thinking,” he said, “It has you seeking out hope, looking for solutions; it’s motivating. It’s when it rises to panic that it’s destabilizing and flattens us, so you break everything down into its smallest elements.”

Strategy for Future

While Levick applauds the industry’s customer accommodations and its political work, he urges that these individual steps be part of a bigger strategy that can help not only in the immediate crisis but also into the future.

“I think the key phrase here is proactive communications, proactive communications. We absolutely need to be doing that. If insurance companies are sitting there waiting for their clients to communicate to them, that’s bad crisis hygiene,” he said.

Levick offers advice from the late General Electric CEO Jack Welch who advised, “In a crisis, over-communicate.”

According to Levick, “You have to communicate genuinely, and the best way to do that is with as many one-to-one conversations as you can have.”

Carriers, agents and brokers, who are the “ambassadors” for the industry, need to keep reaching out, according to Levick.

“This has to be an ongoing proactive campaign. Quite frankly, if I have to go to the insurance company to find out what’s going on about my business interruption insurance, all I’m going to do is be angry. Why do I have to find it? And all I found was some variation of no. No, I want you reaching out to me,” he said.

The messages from ambassadors should extend beyond the current situation.

“I want you talking to me about the long term. Keep this in mind also, when you talk about the long term, you’re no longer talking about why you can’t do something, but you’re talking about the long term, and you’re saying, ‘This is a challenge.’ But then, you’re starting to talk about hope because you’re talking about the long term. Remember, people aren’t sure they’re going to get through this. Is my business going to survive? Am I still going to have my home? Once you start talking about the long term, then people are thinking sotto voce, ‘Wow, there’s hope.'”

The communications can be via calls, emails, webinars, Zoom meetings, press conferences, an online press room and other forums. “It’s about communicating over and over, but keep them short,” he said.

Each message, while short, should recognize that insureds want to hear more than regrets. The message should give customers something.

“You can explain, but it shouldn’t be the only thing or the first thing that you’re leading with. You’ve got to do that after you’ve shown some sacrifice and some empathy,” he explained.

“Everyone knows what the bad news is; the bad news is I’m not covered. But the good news is in each of these different communications. Here’s one thing that we can give you in your premiums. Two, going forward, here’s what we can do. Three, we’re switching to plain language, so people understand more. Four, we’re explaining why we can’t cover,” he continued.

“Explaining may not be very helpful when you want yes, and all you’re getting is no, but if what you’re getting is all these other messages, then you’re more likely to start thinking about, well, going forward I won’t make that mistake.”

Just as important, each message has to align with the values expressed in other communications, including advertising. “You can’t claim to be something you’re not,” he said.

Real Solutions

It takes more than words and pictures. The industry also needs to find ways to be active in the broader effort to come up real solutions.

The industry appears to be following this advice. P/C insurance trade groups have been working with state regulators and members of Congress to be part of the effort to craft government solutions and deliver relief.

Levick believes state regulators are an important ally.

“Work with your state regulators because they understand insurance, they’re much more sympathetic, and they’re the primary regulators anyway. Understand that most of the House members who are involved in this are just looking to get points with their constituents,” he advises.

There is nothing wrong with being sympathetic to the politician’s needs, particularly in New York, but that does not mean agreeing to a law that mandates coverage.

“The last thing in the world you want is for insurance companies to be forced to cover claims in which they receive no premiums, and then be cash short for all those insureds who have other claims that they paid for coverage on. I think that’s also a very powerful and sympathetic argument,” Levick said.

It can be useful to let elected officials who are trying to address their constituents’ needs know that they are being heard.

“You want to help them without being partisan,” says Levick. He suggests issuing a joint industry statement, holding a joint press conference, or agreeing to serve on a commission. Thus the industry helps politicians without committing to future coverage. “You want to be thoughtful about what opportunities you can create here that are platforms that give them a win without causing you undue future harm.”

In addition to working with state regulators, he suggests encouraging ratings agencies to speak out on the effects of requiring insurers to pay claims for which no premiums have been collected.

The tangible offers many carriers are making at the same time they are advancing their financial, political and legal arguments are key to an effective crisis management strategy.

“There’s an old saying in communications that when you’re explaining, you’re losing, but there are some powerful arguments here, and that’s also why the gods of crisis demand a sacrifice,” Levick says. “That’s why doing something like suspending cancellations and renewals is a really good thing to be doing because it shows you’re giving something. It’s the same thing as lending institutions, creditors saying, ‘We’re not going to kick you out of your house for three months. We’re going to let you be as much as three months behind and maybe more on your mortgage.’

“That’s the kind of smaller sacrifice you can make, the renewals, that you can make that lets people know you care. Your message of caring has to include more than just words. It’s when someone breaks your heart and says, ‘Well, I’m marrying somebody else, but I just want you to know I’m broken up about this.’ It falls sort of on deaf ears, but if they make a sacrifice too, then you know they really do care. What’s the sacrifice that insurance companies are going to make? It has to be something.”

Looking Forward

The industry should look forward.

Levick urges the industry to take steps now to educate the public and insureds through joint media webinars or other activities with disease specialists about the potential for future epidemics and pandemics. These efforts produce documentation that could be useful in the future.

“You want to be able to fall back on it, and you want to be able to say, ‘Look, for years we’ve been talking about this, and encouraging our customers to buy policies, and they haven’t,'” Levick said, noting that after SARS some insurers put out SARS policies but people didn’t buy them.

“We have to market into the crisis, and because of that, we should be thinking, ‘Okay, going forward, not just how do we play catch up or how do we play whack-a-mole, but how do we go forward?'”

He said many companies are now slowing down their marketing and as part of that, they’re not doing search engine optimization. But doing some of this now can help control the conversation in the future should this virus return in waves as some experts warn.

“A couple of years from now we may have to deal with some strain or some other coronavirus beside COVID-19,” he said. “You should be planning that now for the long haul, so that you’re prepared and that you’re marketing into it.”

Anticipated Coronavirus Claims Scenarios Across Major Coverage Lines: Viewpoint

While much of the industry’s early focus has been on business interruption policies, there are other lines of coverage that could see significant claims, whether directly caused by the pandemic itself or by social, institutional and governmental reaction to it. Learn more.

Another suggestion is for the industry to focus on using plain language as it speaks out. “People don’t read their insurance policies because they’re so difficult to understand. I think plain language will help,” he added.

That plain language could be in the form of real stories about real people that the industry helps. “Make videos of them,” he advises. This can be done using various web video services including Zoom and WebEx. “You can get great stories with businesspeople talking about how their insurance company is there for them in these other ways, which can be used for search optimization.”

Now is also a time for the industry to remind insureds to check their insurance policies and for brokers to review coverages with them. “We all talk about that, but I can tell you as a small business owner, it’s something that you put on your agenda, and you don’t get to, and that if we’re going to be talking about business interruption going forward, that should be as important as your annual or every other year legal review of potential liabilities,” he said.

The current crisis further presents an opportunity for agents and their carriers to contrast themselves with direct sellers that are offering quick buys in minutes or simple forms to fill out.

“They need to talk to their customers conveying the message that having a relationship with your insurer is valuable. It’s not about reducing the premium by another 10%, it’s about the coverage you have when you need it, and the relationships you have, and that’s what needs to be conveyed right now,” he suggests. “That’s the opportunity, and the sotto voce message. So it actually is an opportunity for the industry to increase premiums because they’ll be selling value. Right now, they’re just selling commodity.”

Finally, Levick sees this crisis as an opportunity for carriers and brokers to review their corporate social responsibility (CSR), philanthropic activities and social causes they support. He said some of these priorities may have been set years ago and may not align with current strategic needs.

“These things get stacked up on top of each other, but no one’s asked what is the overall strategic purpose,” he said, suggesting carriers conduct a CSR review going forward for strategic purposes, including of their geographic regions based on where politicians are based. “So, if you’re concerned about New York representatives who are a big part of this effort on Capitol Hill to increase leverage on forced coverage, then maybe your CSR going forward should make sure it includes New York and a couple of other key constituencies going forward.”

He said this is in keeping with what is known as the Toyota strategy, which dates back 40 years when the Japanese automaker wanted to build cars in the U.S. but faced some xenophobia and major opposition because lawmakers felt Toyota would hurt Detroit automakers.

What did Toyota do? Toyota decided to build its factories and its suppliers, not in Detroit, but in key congressional districts.

“I think that’s the same thing here,” Levick says. “You’re looking at what are the key congressional districts for our CSR, what are some of the key issues? But again, it’s looking at your communication strategy as a longer-term approach as opposed to just how do we get through the end of May?”

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