The Senate Judiciary Committee last week held a hearing titled “COVID-19 Fraud: Law Enforcement’s Response to Those Exploiting the Pandemic.”
The hearing included testimony by William Hughes, associate deputy attorney general, U.S. Department of Justice; Craig Carpenito, U.S. attorney, District of New Jersey; Calvin Shivers, assistant director, Criminal Investigative Division, Federal Bureau of Investigation; and Michael D’Ambrosio, assistant director, U.S. Secret Service, Department of Homeland Security.
Testimony focused on the response to fraud that has resulted from the COVID-19 pandemic. Examples included sale of fraudulent personal protective equipment (PPE) and cyber-enabled fraud; price gouging and hoarding; and fraud relating to the CARES Act’s Paycheck Protection Program (PPP).
As demand for PPE has been greater than the supply, the environment created has been “ripe for exploitation,” Shivers said.
In addition to sales of counterfeit PPE, he cited “advance fee” schemes – in which a victim prepays for goods like ventilators, masks, or sanitizer that are never received – and business email compromise (BEC) schemes, which involve spoofing an email address or using one that’s nearly identical to one trusted by the victim to instruct them to direct funds to bank accounts controlled by the fraudsters.
Shivers said the FBI is working to educate “the health care industry, financial institutions, other private sector partners, and the American public of an increased potential for fraudulent activity dealing with the purchase of COVID-19-related medical equipment.”
He added that millions of units of PPE have been recovered from price-gouging and hoarding operations and the FBI is working to determine next steps for how to redistribute or sell the PPE.
D’Ambrosio said that although “criminals throughout history have exploited emergencies for illicit gain, the fraud associated with the current COVID-19 pandemic presents a scale and scope of risks we have not seen before.”
He described four categories of threat:
COVID-19-related scams, including the sale of fraudulent medical equipment and nondelivery scams;
Cybercrime like BECs, exploiting increased telework;
Ransomware and other activities that could disrupt pandemic response; and
Defrauding government and financial institutions associated with response and recovery efforts.
Thus far, the Secret Service has initiated over 100 criminal investigations, prevented approximately $1 billion in fraud losses, and disrupted hundreds of online COVID-19-related scams, D’Ambrosio said.
Industrywide, philanthropic giving in response to the COVID-19 crisis continues to increase. Using information collected by Insurance Industry Charitable Foundation (IICF), the Insurance Information Institute upgraded its earlier estimate to $280 million donated through early June by U.S. insurers and their charitable foundations in response to the pandemic. In addition, international insurers and their foundations have donated more than $150 million.
On June 15 the IICF announced a $500,000 contribution from Lloyd’s to its Children’s Relief Fund. This donation will help deliver tens of thousands of meals to vulnerable children struggling with food insecurity and help to address educational disruption, family homelessness and other risks exacerbated by the pandemic. This gift from Lloyd’s brings the IICF’s Children’s Relief pandemic campaign total to $1.1 million raised to date.
“As the industry’s leading charitable giving platform and convenor of brokers, insurers and service providers, the IICF’s value proposition rings more clearly now than ever,” said Hank Watkins, Regional Director and President, Americas at Lloyd’s, and former Chair of the IICF Northeast Division Board of Directors. “Lloyd’s is proud to join hands with our industry colleagues in supporting the IICF’s mission and efforts to meet the needs of those in our communities left vulnerable by the pandemic crisis.”
IICF reports seeing widespread and united industry support for its crisis relief campaign, including nearly 600 individual contributors. IICF anticipates providing one million meals throughout this campaign to children and their families in need.
To learn more about the IICF Children’s Relief Fund or donate, please visit here.
By Dr. Steven Weisbart, Chief Economist, Insurance Information Institute
Dr. Steven Weisbart
In normal times, economic news isn’t something many people pay attention to, other than—possibly—at the headline level. And the headlines generally sufficiently convey what’s happening with the economy. But we’re entering a period in which the usual measurements of economic activity might be grossly misleading.
Take real GDP, for example. This is the inflation-adjusted measure of the total output of goods and services for the economy. When real GDP is growing from one calendar quarter to the next, that’s a good sign. The growth is often pretty small, percentagewise, and so it is typically expressed as a SAAR (seasonally-adjusted annual rate). This means that the rate for a quarter is treated as if it would continue at the same rate for the next three quarters. This virtually never happens, but it has become the conventional way to express GDP changes, nevertheless.
To illustrate the effect of expressing real GDP changes as SAAR, look at Figure 1.
Figure 1
This chart uses data provided by Blue Chip Economic Indicators, a publisher of a monthly survey of 53 econometric forecasts. Blue Chip averages the 10 highest, the 10 lowest, as well as the median forecasts, and we’ve graphed them in Figure 1. Note that the median of the forecasts in 2020:Q2 is -35.7 percent. This is a staggering dropoff in the economy, but of course no one is actually predicting that the economy would sink by 8.9 percent per quarter each quarter through 2021:Q1 (which is what results from the SAAR adjustment).
So be prepared for gloom-and-doom headlines in the fall when the Bureau of Economic Analysis publishes its measure of the real growth (or shrinkage) of the U.S. economy in the second calendar quarter.
On the other hand, note from Figure 1 that the GDP growth rates for 2020:Q3 and onward are all positive numbers. This is a picture of an economy that is shrinking for only one quarter—the V-shaped recovery that some economists (not us at the Triple-I) have forecast. This too is a distorted impression. To see why, look at Figure 2.
Figure 2
In Figure 2 you see a small dropoff from 2019:Q4 to 2020:Q1 and the big dropoff from 2020:Q1 to 2020:Q2. You also see growth each quarter from 2020:Q3 onward through the end of 2021. However, despite this growth the economy doesn’t even reach the level of output in 2020:Q1—which includes the first month of the recession—at the end of the 2021 calendar year. On New Year’s Day 2022 we will perhaps be celebrating six consecutive calendar quarters of economic growth, but in relation to the prior non-recession years we will still be lacking (assuming that the Blue Chip median forecast is correct).
If you were to match the pattern of recovery to an alphabet letter, you wouldn’t call it a V; there really isn’t a direct correlate to the slow but steady return to the pre-recession level, but a U might suggest that the economy is taking a while to recover fully.
A natural disaster will strike no matter where you live in the United States. It’s is not a question of if, but when. But if you’re prepared, the damaging impact of a tornado, flood, earthquake or hurricane can be managed.
Alejandro Contreras, Director of Preparedness, Communication and Coordination at SBA’s Office of Disaster Assistance, advised that communications planning is key to a post-disaster recovery strategy. A list of frequently updated contacts should include local media outlets, utility companies and emergency responders. You should also sign up for alerts from FEMA and local public health officials.
Make sure your records are stored electronically off-site (in the cloud) and make sure you have financial records, insurance policy declaration pages, and important contacts.
When reviewing insurance coverage, don’t forget to explore flood insurance. Flooding is the most common and costly natural disaster in the United States, causing billions in economic losses each year. About 90 percent of all natural disasters in the U.S involve flooding. And just one inch of water can cause up to $25,000 in damage, said Contreras. Flood insurance is sold as a separate policy by the National Flood Insurance Program and a growing number of private companies.
It’s important for a business to create a culture of preparedness and make sure employees understand their roles by frequently testing their business continuity plans, concluded Contreras.
The SBA offers low interest long-term disaster loans to businesses. Since mid-March, the agency has distributed about $86 billion in loans for coronavirus-related losses. To apply for a loan or to learn about the requirement visit disasterloan.sba.gov.
Get insured
Loretta Worters, Vice President Media Relations, Triple-I, spoke about being financially prepared for disasters with insurance. To be sure the claims process goes smoothly, take a business inventory listing all assets, she advised. It’s also important to have records of expenses and income.
Worters went over the different types of policies available to businesses and what they usually cover. Property insurance helps protect buildings, equipment, furniture, and fixtures. Business interruption insurance (BI) can help with operating expenses during the period of restoration and includes lost net income (based on financial records), mortgage, rent and lease payments, loan payments, taxes, and employee payroll.
A business may have the option to insure its business property at replacement value or actual cash value, she said, noting the difference is that replacement value coverage can help you replace your property at market prices, whereas actual cash value coverage takes depreciation into account. Replacement value coverage costs more, but it also pays out more in the event of a claim so it’s something business should really consider.
BI is also available for civil authority, such as curfews when businesses have to reduce hours due to government orders.
Utilities service endorsement is available to cover disruption in these services to a business premises.
Worters also noted that, as part of BI, extra expense coverage will cover anything beyond the normal day-to-day operating expenses that is necessary to keep a business solvent, such as renting a temporary place of business while your business is insured or leasing equipment.
In response to an attendee’s question, Worters explained that business income losses are determined based on the business’ profit and the cost of continuing normal operations.
Worters concluded that knowing your risks is an essential element of an overall business plan. While large businesses have risk managers to help make insurance decisions, small-business owners must be their own risk manager but can also get help by consulting with an insurance professional.
Make a recovery plan and test it once a year
Gail Moraton, Business Resiliency Manager, IBHS, cautioned that one out of four businesses that close due to a disaster never reopen, yet 57 percent have no disaster recovery plan. Some small businessowners say they don’t have time or money to come up with a business continuity plan or are in denial that a disaster could wipe them out. Easy-to-use plans and checklists are available from DisasterSafety.org.
Moraton also advised that businessowners get familiar with the likelihood and potential severity of the various risks that could threaten their operations. They range from natural disasters to man-made risks, such as cyber attacks, theft, sabotage, war, and loss of key employees, among many others. Owners also should know their operations and gather information by asking staff to list key functions.
She said employees – the most important asset of any business – should be asked to provide their contact information, emergency contacts, and evacuation destinations.
Businesses need to also have a inventory of their equipment and an understanding of their finances.
Moraton said that once you’ve gathered the key information and have a plan you should update and test that plan every year. Running emergency drills annually will make sure everyone is well prepared in case a real disaster strikes.
Know your hazards
Christopher Cioffi, Commercial Line Engineer, IBHS, provided tips on how to review the hazards in your area by checking on previous years’ severe weather events and reviewing FEMA flood maps. He went over the components of the EZ-PREP plan which includes actions to take before, during and after a disaster.
For example, 72 hours before a hurricane, some of the actions the PREP plan calls for include:
Remove or secure all debris on the property
Review message templates for business’ website, phone recording and employee communications
Take laptops home at the end of each day and confirm they can connect to the business’ server from home
The world’s 10 largest insurance markets are cumulatively expected to see gross domestic product (GDP) decrease by 4.9 percent in 2020 compared to 2019 because of COVID-19, according to a new Insurance Information Institute (Triple-I) report.
“Given the scope of the downturn so far in China, North America, and Western Europe, the virus’s continuing expansion in the Southern Hemisphere, and the possibility of further rebounds in the former this fall and winter, the likelihood of a V-Shaped recovery is extremely low,” writes Dr. Michel Léonard, Vice President & Senior Economist, Triple-I, in the Global Macro and Insurance Outlook: Q2 2020. “The most likely outcome for the rest of 2020 is a slow recovery, with multiple false starts and step backs, that does not stabilize until well into 2021.”
With the 2020 Atlantic hurricane season activity expected to be “well above average” in intensity; three named storms having formed already; and Tropical Depression Cristobal bringing flooding rains and powerful winds from the South to the Midwest as it made landfall in Louisiana, preparedness should be on the minds of everyone who could be affected – and that means more than just people in coastal states.
Cristobal’s low pressure area is forecast to move from the lower Mississippi Valley to the Midwest – just ahead of a cold front that will eventually absorb Cristobal’s remnants as it moves into southeastern Canada, according to Weather.com: “The combination of deep, tropical moisture from Cristobal and the cold front will wring out heavy rain along a swath from the lower Mississippi Valley into the Midwest. Strong winds will also develop in the Midwest and Great Lakes from this setup.”
If Cristobal remains a tropical depression when it crosses into Wisconsin, it would be the first tropical depression on record in the state, according to the National Weather Service in Milwaukee.
“Inland flooding has resulted in more deaths in the past 30 years from hurricanes and tropical storms in the U.S. than any other threat,” said CNN meteorologist Brandon Miller. “Though wind speeds and storm surge are important, and get a lot of the headlines, flash flooding from intense rainfall associated with the storm’s rainbands impact far more people and stretch over a much larger area.”
About 90 percent of all natural disasters in the U.S involve flooding. This is why experts like Dan Kaniewski – managing director for public sector innovation at Marsh & McLennan and former deputy administrator for resilience at the Federal Emergency Management Agency (FEMA) – strenuously urge everyone to buy flood insurance.
If it can rain, it can flood
“Any home can flood,” Kaniewski said in a recent Triple-I webinar. “Even if you’re well outside a floodplain…. Get flood insurance. Whether you’re a homeowner or a renter or a business – get flood insurance. It’s not included in your homeowners policy, and most people don’t understand that.”
Dr. Rick Knabb – on-air hurricane expert for the Weather Channel, speaking at Triple-I’s 2019 Joint Industry Forum – was similarly emphatic:
“If it can rain where you live,” he said, “it can flood where you live.”
He recounted buying a new home, asking his agent about flood insurance, and being told, “You don’t need it.”
“I told him, ‘Get it for me anyway,’” Knabb said.
Flood insurance purchase rates too low
As the Triple-I blog previously reported, 2019 was the second-wettest year on record across the continental U.S., yet flood insurance purchase rates remain low. To illustrate the difference between having and not having flood insurance, Kaniewski described two scenarios related to 2017’s devastating Hurricane Harvey.
“The average [FEMA] payout for the uninsured homeowner in the Houston area was about $3,000,” Kaniewski said. “But if you were proactive and took out a relatively low-cost flood insurance policy…you would have received not $3,000 but $110,000. You’re not going to recover on $3,000, but with $110,000, you’d be well on the path to recovery.”
Unfortunately, he said, even inside designated floodplains, “two-thirds of homeowners do not have flood insurance.”
By Max Dorfman, Research Writer, Insurance Information Institute
A new and risky legal precedent could be set as the coronavirus pandemic continues to roil the U.S. economy. A growing number of policyholders say that insurers are acting in bad faith when they deny claims for losses sustained during shutdowns.
While business income interruption coverage typically covers physical damage to a property, some businesses believe the potential presence of the virus on their property or in their community is equivalent to physical damage.
Business income interruption exclusions for pandemics date back to the 2002-2003 SARS epidemic, when insurers realized that the risk of such a massive health crisis would be impossible to credibly quantify, and thus impossible to absorb.
In several recent articles, some plaintiffs’ attorneys have accused insurers of acting in bad faith by issuing quick denials without properly investigating their claims. “Quite frankly, the prevailing law on the insurance policies is that coverage is supposed to be interpreted broadly and exclusions are supposed to be interpreted narrowly,” said William Shernoff, a founding partner of California-based Shernoff Bidart Echeverria LLP, which specializes in representing policyholders in claims against insurance company denials. Shernoff also stated that any inconsistency in a policy means it’s ambiguous and would result in a decision favoring the plaintiffs.
Michael Menapace, an insurance lawyer and a Triple-I non-resident scholar, disagrees. “They’re trying to recast what the damage is from the policy trigger of “direct physical loss of or damage to property” to a broader concept of “loss of use,” which term does not appear in most policies. They’re also going to claim that somehow the entire insurance industry tricked policyholders by sneaking in the virus exclusion. There is a tension between the plain meaning rule [what the exclusion literally states], and the doctrine of reasonable expectations [the way someone who is not trained in the law would interpret them].” He continued, “When an insurance company denies a claim, they may get the decision wrong – but it doesn’t mean they denied it in bad faith.” Menapace adds that the virus exclusion has not been tested in the courts on any large scale since its adoption in 2006. “There’s so little case law on virus exclusions during pandemics, I have a hard time believing insurers are acting in bad faith.”
There are many reasons for the insurance industry not to act in bad faith under these circumstances. An insurer that is deemed to have acted in bad faith can be liable for damages that are greater than the policy limits, including but not limited to interest, emotional distress, consequential economic losses, attorneys’ fees and punitive damages.
Menapace also makes the point that business income interruption claims from a pandemic would rapidly deplete insurers’ reserves and surplus that are needed for covered losses such as those from hurricanes and other perils. “We can insure certain events because there is a spreading of risk,” saidMenapace. “If everyone has the same loss at the same time, like from a pandemic, we lose the fundamental aspect of insurance, which is risk spreading.”
Much depends on how the courts interpret the exclusions. “Insurers said they were not going to cover damage due to pandemics. There is going to be new law created. It depends whether the courts will read the plain meaning of the exclusion, or if they’ll interpret some of the creative arguments of the plaintiffs.” If these contracts will retroactively favor the insured, Menapace added, it could force insurers to stop covering business income interruption in any scenario, as the costs would simply be too great. And that would be truly bad for policyholders and insurers alike.
By Dr. Steven Weisbart, Chief Economist, Insurance Information Institute
The employment report for May 2020, just released by the U.S. Bureau of Labor Statistics, has some surprising numbers. I’m not referring to the national employment or unemployment numbers (although they are surprising) but to the employment numbers for April for the insurance industry.
In April, you might remember, the numbers for the national economy were dreadful. The unemployment percentage shot up to 14.7 percent, and the number of people unemployed spiked to 20.7 million. The comparable numbers for subsets like the property/casualty (P/C) insurance industry aren’t released until a month later, but they became available today.
In April, P/C insurance carriers gained 3,000 jobs and life/annuity carriers gained 5,600 jobs! In April, health (mainly medical expense) carriers lost 1,900 jobs, and insurance brokerage and agencies lost 15,200 jobs. I suspect that the agent/brokerage losses were at small businesses that, in May, will completely reverse these losses as a result of the Paycheck Protection Program.
It looks like the insurance industry is doing its part to keep the economy running.
With a number of carriers increasing the credit they are giving on their policies, U.S. auto insurers will return over $14 billion to their customers nationwide in response to reduced driving during the pandemic, according to an Insurance Information Institute (Triple-I) estimate.
Auto insurers are giving refunds to their customers as people are driving less due to coronavirus shut-downs. No action is required by customers to receive credit in most cases, but to learn more, contact your auto insurer.
The 2020 Atlantic hurricane season activity is projected to be “well above average,” according to Triple-I non-resident scholar Dr. Phil Klotzbach.
Dr. Klotzbach, an atmospheric scientist at Colorado State University (CSU), and his team issued an updated forecast on June 4. They project the 2020 Atlantic hurricane season will have 19 named storms (including the storms that already formed), 9 hurricanes, and 4 major hurricanes.
Probabilities for at least one major (category 3-4-5) hurricane landfall on each of the following coastal areas are:
1) Entire continental U.S. coastline – 70 percent (average for last century is 52 percent)
2) U.S. East Coast, including Peninsula Florida – 46 percent (average for last century is 31 percent)
3) Gulf Coast from the Florida Panhandle westward to Brownsville – 45 percent (average for last century is 30 percent)
The probability for at least one major hurricane tracking into the Caribbean (10-20°n, 88-60°w) is 59 percent (average for last century is 42 percent).
An early forecast had predicted eight hurricanes. A typical year has 12 named storms and six hurricanes — three of them major. Major hurricanes are defined as Category 3, 4, and 5 storms, where wind speeds reach at least 111 miles per hour.
The active 2020 season is partly due to a warmer than normal eastern Atlantic, which is typically associated with more active Atlantic hurricane seasons. Tropical Storms Arthur, Bertha and Cristobal have already formed in the Atlantic as of June 2nd.
“It is important to recognize that these forecasts are not perfect,” said Klotzbach. And even when correct “we can’t say when or where these storms are going to track or if a significant hurricane is going to make landfall.”
“The general public needs to remember that it only takes one storm to make this an active season for you. So now is the time to get the hurricane preparedness kit together so that you will be ready when and if storms threaten,” he concluded.
Take steps to mitigate risks for your home and business – make simple repairs/clean-up of property.
Gather emergency supplies (have a minimum seven days of non-perishable food, one gallon of drinking water per person per day, and medications for all family members).
Take an inventory of your personal property – photos of possessions will make it much easier to file an insurance claim after the storm.
Review your homeowners, auto and business insurance coverage with your insurance professional to ensure you have appropriate coverage in case of loss.
If you don’t already have it, ask your insurance professional about adding flood coverage to your home or business policy. Flood damage is excluded under standard homeowners and renters insurance policies and ninety percent of natural disasters involve flooding. You don’t need to live in a flood zone to incur flood damage from a storm.
Prepare evacuation routes well ahead of time. Make sure you know how to quickly and safely escape your area if emergency management officials issue evacuation orders.
Don’t forget about your pets. When evacuating, many residents leave their pets behind because they have no place to take them. Make sure your local shelters will accept pets and gather information on hotels and motels that allow pets in guest rooms.
