Monthly Archives: May 2020

Disaster Preparedness, Disaster Resilience

Wildfires and Insurance: Learn How to Prepare Financially

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Another wildfire season has begun. Almost 4.5 million U.S. homes are at high or extreme risk of wildfire, with more than 2 million in California alone.

Residents of wildfire prone areas and just about anyone who is seriously concerned about the dangers posed by wildfire could benefit from the National Fire Protection Association‘s webinars on how to prepare to defend against the destructive threat of wildfire.

A recording of the May 6 webinar on financial preparedness can be viewed here.

The presenters were Nicole Mahrt-Ganley, American Property Casualty Insurance Association, and Janet Ruiz, Insurance Information Institute (Triple-I). They offered guidance on how to read a homeowner’s insurance policy, understand policy deductibles, and the factors to consider when determining how much insurance coverage to purchase.

Ruiz and Mahrt-Ganley discussed how insurers assess a home’s risk to wildfires through sophisticated technology and on-site inspections as well as the ways an insurer calculates homeowner’s insurance premiums based on the home’s loss history, location, age, size, and its construction type and quality.

They also provided tips on how to develop an inventory of a household’s personal possessions, steps to take if a homeowner’s insurance policy is non-renewed, and how to navigate the insurance claims process.

Disaster Preparedness

COVID-19 Wrap-up: Pandemic Complicates Hurricane Preparation

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The National Oceanic and Atmospheric Administration (NOAA) has predicted an above-normal hurricane season in terms of the total number of storms. Its  2020 Atlantic Hurricane Season Outlook calls for 13-19 named storms, 6-10 hurricanes, and 3-6 major hurricanes.

This year, the COVID-19 pandemic adds a layer of difficulty to hurricane preparedness, particularly when it comes to evacuation plans. Florida state officials anticipate the challenge of preparing shelters with social distancing measures in place and have asked FEMA for guidance. New Orleans is advising residents to plan to include hand sanitizer and face coverings in their emergency home kits and go-bags.

Likewise, the impending hurricane season subjects managing pandemic response and reopening the economy in its wake to additional uncertainty.

COVID-19 to Increase Hurricane Losses, Widespread Events the Most Artemis, May 26, 2020

Hurricane Season Gets A Little More Complicated With Coronavirus, Bloomberg Green, May 25, 2020

What Happens if a Hurricane Hits During the Pandemic? New York Times, May 24, 2020

COVID-19 to Increase Hurricane Losses, Widespread Events the Most Artemis, May 26, 2020

Global Risk and Insurance Impacts

The European Commission should create a European Union-based resilience framework to provide insurance cover for catastrophes, such as pandemics and huge cyberattacks, the Federation of European Risk Management (FERMA) said Tuesday.

Reuters reports that the proposed framework would involve public-private partnerships and could respond to events that create hefty business losses without physical damage.

Commercial prices climb

Prices for commercial insurance are rising at rates not seen for almost two decades, compounding pressure on businesses that are already struggling to deal with the coronavirus crisis, The Financial Times reports. Industry experts say that prices for some types of cover are doubling as insurers attempt to repair some of the damage the crisis has inflicted on their balance sheets.

Insurers are facing a double hit from coronavirus, the FT says. Claims from customers could pass $100 billion in total, while there has also been a hit to reserves from volatile financial markets.

French ruling puts coronavirus claims on global menu

Reuters reports that AXA will meet the bulk of business interruption claims from some restaurant owners in France after losing a court case seen as a potential precedent for coronavirus-related disputes across the world.

A Paris court ruled last week that AXA should pay a restaurant owner two months of revenue losses caused by the virus pandemic. AXA had argued its policy did not cover business disruption caused by the health crisis.

Business Risk, Insurance Industry

Triple-I CEO Tells U.S. House—Global Pandemics Are Uninsurable

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On May 21, Triple-I CEO Sean Kevelighan testified before the U.S. House of Representatives’ Small Business Committee on the subject of business interruption coverage.

Since the outbreak of COVID-19, some legislators and advocates have pushed for policies that would retroactively force insurers to pay for claims their insurance policies were not priced to cover. The U.S. House session, “Business Interruption Coverage: Are Policyholders Being Left Behind?,” gave members of the committee the opportunity to hear from policyholders and other interested stakeholders.

“An event like a global pandemic is uninsurable,” said Kevelighan in his statement. “Unlike a typical covered catastrophe, which is limited in terms of geography and time, pandemics have the potential to impact everywhere, all at once…. As such, this type of magnitude requires government resources to step in and provide support.”

Property business insurance, in general, is meant to cover physical damage from perils like fire, tornado, or hurricane,” he said. Forcing insurers to cover losses related to the pandemic – which don’t involve physical damage to property – would cost the industry between $150 billion to $400 billion per month.

“Make no mistake; retroactive business interruption payouts would bankrupt insurers,” said Kevelighan.  “A recent Triple-I economic analysis determined this type of approach would decimate the industry’s financial resources in a matter of months, and at a time it needs those monies for major natural disasters that insurance policies cover, such as tornadoes, hurricanes, and wildfires.”

 “Any efforts to retroactively rewrite business interruption policies are not only unconstitutional (Article I) but would imperil the insurance industry’s ability to pay covered insurance claims filed by American homeowners, drivers, and injured workers,” Kevelighan said.

“The current government shut-down orders do not trigger the vast majority of standard business interruption policies because those orders do not qualify as direct physical loss to property—a requirement under the policies,” he said.

“The insurance industry is stepping up for Americans, with the likes of $10.5 billion in personal auto insurance premium relief, $220 million in charitable donations, and even more by keeping nearly two million Americans employed so insurance customers will be covered, and have their claims handled, when other disasters strike,” Kevelighan concluded.

View the full testimony and a recording of the webcast here.

The insurance industry is united in its position that pandemics are uninsurable, and the industry has some formidable support in that view. In a letter to the committee, the National Association of Insurance Commissioners (NAIC) said: “The current COVID-19 crisis has highlighted that many existing business interruption (BI) policies have specific exclusions for viruses or other diseases, and coverage is generally only triggered by actual physical damage. Therefore, these policies were generally not designed or priced to provide coverage for claims arising from COVID-19.”

The NAIC letter said that the group opposes efforts to legislatively apply business interruption coverage retroactively to claims based on COVID-19 and “has serious concerns that requiring retroactive coverage of BI claims based on COVID-19 would pose significant risks to the solvency of insurance companies and could have systemic impacts on the industry as a whole and potentially the financial system.”

And in a letter to President Trump on May 18, six Republican Senators warned that altering insurance law to cover all pandemic claims under business interruption policies would devastate the capital reserved for paying other insurance claims.

Life Insurance

Can Life Insurers Cover All COVID-19 Death Claims?

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Coronavirus

Will life  insurers be able to  pay all the death claims attributable to COVID-19 that come on top of claims for deaths not directly related to the pandemic?

Triple-I chief economist Dr. Steven Weisbart says they can.

How many additional death claims will COVID-19 cause?

As of this writing, officially about 90,000 Americans have died from COVID-19. In addition, there have been other deaths that seem excessive relative to “normal” statistics in prior years, suggesting the COVID-19 numbers are an undercount. It’s also possible that the “lockdown” imposed nearly nationally in late March, April, and in part of May, added to the total through suicide, drug overdoses, untreated conditions that would have been treated and managed in the absence of the pandemic, and violence.

So, let’s assume that, for the full year 2020, COVID-19 and related stresses cause 300,000 additional deaths. For simplicity, we’ll ignore any lockdown-related reductions in deaths – from, for example, fewer traffic accidents, air pollution, and other causes – that might be attributed to the pandemic.

Dr. Steven Weisbart Triple-I Chief Economist

“It’s unlikely that all the people who’ve died from COVID-19 had individual life insurance, since many were age 60 or over,” Weisbart says. “Even if we assume a third of these were insured – and, further, that two-thirds of younger people who died also had life insurance – and that all these claims were in addition to other causes of death, that would be 150,000 claims.”

In 2018, the latest year for which we have data, beneficiaries under 2.7 million individual life insurance policies received death benefits. So, although 150,000 additional death claims represent a large human toll, they would be only a 5.6 percent increase over the 2.7 million baseline.

“That would result in total death benefits being paid to 2.85 million beneficiaries,” Weisbart says. “This is roughly the same as occurred in 2015 and well below the peak of 3.5 million in 2012.”

In other words, even with our conservative assumptions, paying the additional deaths claims due to the pandemic is well within the industry’s financial and operational ability.

Disaster Preparedness

NOAA predicts above normal 2020 Atlantic Hurricane Season

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The National Oceanic and Atmospheric Administration (NOAA) predicts an above-normal hurricane season in terms of the total number of storms. NOAA’s  2020 Atlantic Hurricane Season Outlook  calls for 13-19 named storms, 6-10 hurricanes, and 3-6 major hurricanes.

An early forecast by Colorado State University predicted 16 named storms, 8 hurricanes, and 4 major hurricanes for the year, with above-average probability for major hurricanes making landfall along the continental United States coastline and in the Caribbean. The Colorado State team, led by Triple-I non-resident scholar Dr. Phil Klotzbach, will have an updated forecast on June 4.

The Atlantic hurricane season runs from June 1 through November 30.

Hurricane preparedness during the COVID-19 pandemic

This year the COVID-19 pandemic adds a layer of difficulty to hurricane preparedness, particularly when it comes to evacuation plans. Florida state officials anticipate the challenge of preparing shelters with social distancing measures in place and have asked FEMA for guidance. New Orleans is advising residents to plan to include hand sanitizer and face coverings in their emergency home kits and go-bags.

As an alternative to emergency shelters, this P/C 360 article suggests that those who are able to do so should plan to stay with friends or relatives or secure a hotel room at least 100 miles inland from their home. Hurricanes can strike with little advance warning so it’s vital to prepare.

The CDC has issued the following prep tips:

  • Understand that your planning may be different this year because of the need to protect yourself and others from COVID-19.
  • Give yourself more time than usual to prepare your emergency food, water, and medicine supplies. Home delivery is the safest choice for buying disaster supplies; however, that may not be an option for everyone. If in-person shopping is your only choice, take steps to protect your and others’ health when running essential errands.
  • Protect yourself and others when filling prescriptions by limiting in-person visits to the pharmacy. Sign up for mail order delivery or call in your prescription ahead of time and use drive-through windows or curbside pickup, if available.
  • Pay attention to local guidance about updated plans for evacuations and shelters, including potential shelters for your pets.
  • If you need to evacuate, prepare a “go kit” with personal items you cannot do without during an emergency. Include items that can help protect you and others from COVID-19, such as hand sanitizer or bar or liquid soap if not available, and two cloth face coverings for each person. Face covers should not be used by children under the age of 2. They also should not be used by people having trouble breathing, or who are unconscious, incapacitated, or unable to remove the mask without assistance.
  • When you check on neighbors and friends, be sure to follow social distancing recommendations (staying at least 6 feet, about 2 arms’ length, from others) and other CDC recommendations to protect yourself and others.
  • If you need to go to a disaster shelter, follow CDC recommendations for staying safe and healthy in a public disaster shelter during the COVID-19 pandemic.

Useful links

Hurricane preparedness tips and resources

State Hurricane Fact Sheets

Hurricanes Facts & Statistics

Business Insurance, Business Risk, Legal Environment

COVID-19 Wrap-Up:BI Coverage Continues to Make Headlines

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From new litigation to proposed legislation, debate over whether insurers should be required to pay for business losses related to the coronavirus pandemic remain in the news. 

Restaurants Sue Insurers Over Business Interruption Claims  

Proprietors of more than 10 restaurants, bars, and bakeries in Washington, D.C., joined a growing list of restaurateurs seeking coverage for pandemic-related damages, The Washington Post reports.   

The Post interviewed Triple-I CEO Sean Kevelighan and Triple-I non-resident scholar Michael Menapace, who explained why the suits are unreasonable and threaten the insurance industry’s solvency. 

“The insurance business works by spreading risk around so the industry isn’t hit all at once with claims,”  Kevelighan says. “A pandemic disrupts business far and wide, with no end date in sight.” 

About 40 percent of all companies have business interruption insurance, and most policies do not cover COVID-19.  If lawmakers retroactively require carriers to pay these unplanned-for claims, it could cost the insurance industry $150 billion a month, which would quickly deplete its $800 billion surplus. 

Policyholder Pulls COVID-19 Suit Against Broker, Insurer Business Insurance May 20, 2020 

Insurance Speak: Business Interruption Claims and COVID-19 Property/Casualty 360, May 20, 2020 

COVID-19 and Business Interruption Insurance – How to File a Claim the Right Way Franchising.com, May 19, 2020 

Coronavirus Pandemic Threatens Run on Business Interruption Policies Sold by Captive Insurance Risk Pools Forbes.com, May 19. 2020 

California Music Venues Sue Insurer over Business Interruption Related to COVID-19 Insurance Journal, May 15, 2020 

La. Lawmakers Scrap Business Interruption Bill

Louisiana lawmakers scrapped a bill that would have forced insurers to cover retroactive business interruption claims due to COVID-19, Business Insurance reports. 

However, state senators agreed to rewrite and amend Senate Bill 477 to allow a proposal requiring insurers to clarify exclusions on business interruption policies to move ahead. 

The scrapping of the Louisiana proposal follows last week’s decision by the Council of the District of Columbia not to go ahead with a proposal to force insurers to provide retroactive business interruption coverage on small-business COVID-19 claims. 

Coronavirus Updates in Louisiana: 35,038 COVID-19 Cases, 2,458 Deaths, WDSU 6, New Orleans, May 19, 2020 

Dozens of Workers at 3 Louisiana Crawfish Farms Test Positive for COVID-19, 4 WWL, New Orleans, May 19, 2020 

Red Flags Found at Louisiana Nursing Homes Ravaged by Coronavirus, NOLA.com, May 19, 2020 

Pa. Bill Would Define COVID-19 as Property Damage 

The Pennsylvania Senate is weighing a bill that would include losses spurred by the COVID-19 global pandemic under property and business interruption insurance coverage, Property/Casualty 360 reports. 

Senate Bill 1127 doesn’t explicitly state that insurers must cover COVID-19 business interruption claims. The bill states that if a covered property is located within a municipality where “the presence of the COVID-19 coronavirus has otherwise been detected,” that property is “deemed to have experienced property damage.” 

It also states that Gov. Tom Wolf’s March 19 emergency order to close businesses is to be considered an order of civil authority under a first-party insurance policy which limits, prohibits, or restricts access to non-life-sustaining business locations “as a direct result of physical damage at or in the immediate vicinity of those locations.”  

Coronavirus: 63,666 cases of COVID-19 in Pennsylvania, WGAL News 8, May 20, 2020 

Nursing Homes in Southeast Pa. Hit Hard By Coronavirus Deaths, New Data Shows, NBC 10 Philadelphia, May 20, 2020 

Pa. Releases Names of Nursing Homes with Coronavirus Cases, Deaths, Philadelphia Inquirer, May 19, 2020 

Pa. Supreme Court Rejects Emergent Application to Consolidate COVID-19 Business Interruption Claims JDSupra.com, May 19, 2020 

Pa. Insurance Commissioner Warns Businesses of Increased Liability Risks If Defying Coronavirus Shutdow Orders KDKA 2, Pittsburgh, May 11, 2020 

Publisher Appeals COVID-19 Ruling Denying Coverage 

A magazine publisher is appealing a federal court ruling in favor of an insurer in a coronavirus-related business interruption dispute, Business Insurance reports. 

In one of the first court rulings on the business interruption coverage issue, U.S. District Court Judge Valerie E. Caproni, in the Southern District of New York, said the policyholder’s attorney deserved “a gold star for creativity” but the loss was not covered under the policy issued by the unit of Hartford Financial Services Group Inc. 

From the Triple-I Blog

REQUIRING INSURERS TO COVER PANDEMIC-RELATED SHUTDOWNS WOULD JEOPARDIZE INDUSTRY’S SOLVENCY, EXPERTS SAY

TRIPLE-I LAUNCHES CAMPAIGN TO SUPPORT RESILIENCY OF THE ECONOMY DURING THE CORONAVIRUS PANDEMIC

WEBINAR: BUILDING RESILIENT BUSINESSES AND COMMUNITIES IN THE TIME OF COVID-19

U.S. TREASURY WEIGHS IN ON DEBATE SURROUNDING BUSINESS INTERRUPTION INSURANCE

WORKERS COMP, LIABILITY NEXT UP FOR VIRUS-RELATED INSURANCE DISPUTES

Life Insurance

Are Life Insurers Writing Less Business Because of COVID-19?

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COVID-19 has changed many aspects of our lives, so it isn’t surprising to see life insurance markets affected. But some stories create false impressions that should be corrected.

The story that some life insurers are writing fewer policies “because of COVID-19” has gained traction in both traditional and social media. While not wrong, like other stories involving insurance and COVID-19, it requires context to keep it from wandering off into urban legend territory.

“Life insurers’ ability to keep their promises to policyholders depends on numerous factors,” explains Triple-I chief economist Dr. Steven Weisbart.  “Among them are interest rates and how responsibly insurers underwrite policies and manage their investments.”

Dr. Steven Weisbart
Triple-I Chief Economist

Interest rates exceptionally low

What do interest rates have to do with life insurance? Many products (whole and universal life and term life for 20 years or more) calculate premiums in the expectation that, during the life of the policy, the insurer will earn enough interest from its investments, net of investment expenses and taxes, to help pay life insurance benefits. Many life insurance and annuity policies – especially those issued 10 or more years ago – guarantee to credit at least 3 percent per year.

“Efforts to stave off the recession spurred by attempts to ‘flatten the curve’ of infections and deaths caused by the virus have led to historically low interest rates,” Weisbart says.

Gross long-term rates on the investment-grade corporate bonds life insurers primarily invest in had been 4 percent for most of the past decade and plunged below 3 percent in August 2019. Since the onset of the pandemic, rates have fallen even further (see chart).

“So, life insurers – who planned to profit from the ‘spread’ between the interest they earned on their investments and the interest they credited on their policies – have lately struggled as this spread disappeared and then reversed,” Weisbart says.

Options are limited

“So, that’s it!” I hear some of you say. “It’s all about rich insurance companies protecting their profits!”

Businesses must make a profit to stay alive, and U.S. insurers – one of the most heavily regulated and closely scrutinized businesses on the planet – have the additional requirement to maintain substantial policyholder surplus to ensure claims can be paid. Life insurers, in particular, are required to maintain a special account – the interest maintenance reserve (IMR).

“The IMR is drawn down when net interest earnings are too low to support claims – as is the case now,” Weisbart says. “If it’s exhausted, insurers can draw down surplus, but they can’t draw too much because they’re required to keep at least a minimum surplus to protect against adverse outcomes in all other lines of business.”

If their investments aren’t performing as well as expected, insurers have two options: write less business or charge more for the business they write.

Exercising a combination of these options is what life insurers are doing now.

“When interest rates eventually rise, the profitable spread will return,” Weisbart says, and competition among insurers will likely lead to more liberal underwriting and lower premiums. “But we can’t predict with confidence when that might happen.”

Until then, life insurers are tightening their criteria for issuing new policies and, in some cases, raising premiums so they can deliver what they’ve promised their existing policyholders.

Business Risk, Insurance Industry

Requiring insurers to cover pandemic-related shutdowns would jeopardize industry’s solvency, experts say

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Most insurance experts believe legislative proposals that would require insurers to cover business-interruption (BI) claims stemming from COVID-19 related shutdowns, even if the insurance policies exclude pandemic-related losses, threaten the solvency of the insurance industry. This is the finding of a survey conducted by the Wisconsin School of Business and the Center for Insurance Policy and Research of the National Association of Insurance Commissioners (NAIC).

The survey also found most experts believe the private market will have a difficult time efficiently supplying BI coverage for pandemics, given the systemic, correlated, and non-diversifiable nature of the peril.

Many survey respondents felt only the federal government can provide coverage for correlated risks because it can spread the cost through taxation, long-run borrowing, and deficit financing. But whether provided by only the federal government or the private market, the pricing and affordability of coverage were indicated to be issues for both.

Most said they believe the private market can supply BI coverage for pandemics with an effective federal partnership. Some questioned whether the Terrorism Risk Insurance Program (TRIP) is a good model for pandemic insurance, given the similarities between the pandemic and terrorism perils.

The complete survey can be found here.

Business Insurance, Insurance Industry

Triple-I Launches Campaign To Support Resiliency Of The Economy During The Coronavirus Pandemic

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On May 18 the Insurance Information Institute (Triple-I) announced the launch of the Future of American Insurance & Reinsurance (FAIR) campaign. FAIR will focus on ensuring the insurance industry is able to sustain its longstanding role as the country’s backbone of economic growth and stability.

FAIR is being set into motion as the country seeks a pathway to economic recovery in the wake of the COVID-19 pandemic. As communities reopen and restart, insurers will play a critical role in the process, continuing to provide financial protection for the millions of Americans who depend on them for indemnification from risks they rightfully insured. Yet the industry is threatened with growing calls to retroactively alter insurance policies, cover the economic cost of widespread closures, and adjust workers’ compensation criteria, among other new developments.

Sean Kevelighan

“FAIR was created to safeguard the ability of the insurance industry to support its customers at a time when policymakers, the business community, and the general public are searching for solutions to our ongoing economic turmoil. And while we recognize the need for financial relief is severe, any attempts to make insurers retroactively responsible for a global pandemic puts the solvency of many insurers at risk,” said Sean Kevelighan, CEO, Triple-I.

“While the insurance industry has been doing its part to step up and support their communities in this time of crisis, pandemics are fundamentally uninsurable events. The federal government remains the only entity with the financial resources to help businesses recover from a systemic event of this magnitude. With the support of the public sector and the innovation of groups like insurers in the private sector, we can come together to work toward recovering from this catastrophe and build a more resilient future,” he added.

Insurance carriers are an integral part of local communities across the country, employing over 2.7 million Americans and contributing nearly $565 billion to the nation’s Gross Domestic Product (GDP) in 2018. The industry has cumulatively offered consumers more than $10 billion in premium relief on auto insurance this spring and made over $220 million in charitable donations to COVID-19-related causes.

FAIR will serve as a go-to educational resource for the media, business community, and broader public in the coming weeks and will actively engage in a variety of insurance and COVID-19-related developments across America.

For more information visit fairinsure.org and follow @FAIRInsure on Twitter.