All posts by Jeff Dunsavage

Catastrophes

Insured LossesDue to Civil UnrestSeen Nearing 1992 Levels

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Insured losses related to civil disorder in 2020 are on their way toward a level not seen since 1992, according to estimates by insurance industry analysts. 

On May 26, 2020, protests and riots broke out in response to the death of George Floyd while in Minneapolis police custody and spread to another 140 U.S. cities. By June 4, at least 40 cities in 23 states had imposed curfews, and rioting resulted in at least six deaths. National Guard were called in at least 21 states and Washington, D.C. 

Property Claim Services (PCS) a unit of a Verisk Analytics, has designated the Minneapolis riots a catastrophe. This was the first time PCS has compiled insured losses for a civil disorder event since the Baltimore riots of April 2015. Insured losses in the Baltimore unrest – following the funeral for Freddie Gray, a 25-year-old who died in police custody – fell short of $25 million when it occurred, PCS’s threshold for a catastrophe.  

The 2020 activity, spanning May 26 through June 8 and including more than 20 states with significant losses, is the first time since 1992 that PCS has declared a civil disorder event a catastrophe. The 1992 riots in Los Angeles, after a jury acquitted Los Angeles Police Department officers for using excessive force in the arrest and beating of Rodney King, caused $775 million in insured losses, according to PCS – or about $1.4 billion in 2020 dollars. 

Insured losses for the most recent event are not yet available from PCS. Preliminary estimates from industry analysts put the losses in the range of $500 million to $900 million.

Those estimates will likely change as insurers are resurveyed and data is refined. 

With protests and clashes with police continuing in Portland, Ore., and elsewhere, and President Trump threatening to send federal troops to quell the disorder in some cities, no end seems to be in sight for this costly string of civil disturbances.  

Business Insurance, Business Risk

COVID-19 and Shipping Risk

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The shipping industry has largely proved resilient to the coronavirus outbreak, and insurance claims related to risks of the sea could be reduced as fewer vessels venture out, insurer Allianz reports in its Safety and Shipping Review 2020. 

However, new challenges have emerged that could lead to more claims. 

“One of the biggest issues,” Allianz reports, “has been the inability to change crews easily because of pandemic restrictions.” 

Crew relief is essential to ensuring the safety and health of seafarers. Fatigued crew members make errors that Allianz says contribute to 75 percent to 96 percent of marine incidents. Damaged goods and containers account for more than one in five shipping claims. 

“The pandemic has heightened the risk environment around high-value and temperature-sensitive goods in particular as supply chains have come under pressure, cargo-handling companies have shut down abruptly, and ports operated under restrictions,” Allianz says. 

COVID-19 also has made it hard to obtain parts and materials like lubricants that are essential to maintenance and repair. This could make ships and the equipment on board them less safe, potentially leading to groundings or collisions. 

Such an outcome could impede or reverse the industry’s steadily improving safety record.  

The number of total losses of large ships fell in 2019 to 41, Allianz reported – “the lowest total this century and a close to 70% fall over 10 years.” 

The insurer credits improved ship design, technology, regulation, and risk management as contributing to the long-term reduction in losses. 

But improved technology can be a two-edged sword as vessels become more reliant on computers and software, making them vulnerable to cyber incursions. The coronavirus outbreak has affected this risk, too, Allianz says, reporting that companies have faced a 400% increase in attempted cyber-attacks since the pandemic began.  

Health & Safety, Workers Compensation

Wrap-up: COVID-19 and Workers Comp

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Lauded for their service and hailed as heroes, essential workers who become infected with the coronavirus on the job have no guarantee in most states that they’ll qualify for workers compensation to cover lost wages and medical care, Associated Press reports. 

Fewer than one-third of the states have enacted policies that shift the burden of proof for coverage of job-related COVID-19 so workers like first responders and nurses don’t have to show they got sick by reporting for a risky assignment. 

And for most employees going back to job sites as the economy reopens, there’s even less protection than for essential workers. In nearly all states, they have to prove they got the virus on the job to qualify for workers comp. 

Workers comp is not health insurance, or an unemployment benefit. In exchange for coverage, workers give up the right to sue their employers for job-related harms. Employers pay premiums to support the system. Complex rules differ from state to state. 

Dealing with job-related injuries is fairly straightforward, but diseases have always been trickier for workers’ comp, and COVID-19 seems to be in a class of its own. 

“You don’t know per se where you inhaled that breath whereby you became infected,” said Bill Smith, president of the Workers’ Injury Law & Advocacy Group, a professional association of lawyers representing workers.  

Read more: 

Families of health workers killed by COVID-19 fight for denied workers comp benefits (Philadelphia Inquirer, July 16, 2020) 

Workers comp in the new world of the COVID-19 pandemic (Law.com, July 16, 2020) 

Report: Sharp drop in California workers’ comp premiums expected from COVID-19 (Insurance Journal, July 14, 2020) 

Disaster Preparedness, Disaster Resilience

Hurricane Modeling: High-Tech MeetsLocal Insight

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Sophisticated computer modeling has led to great advances in forecasting weather-related disasters and their potential human toll and economic impact. The predictive power of these models has given insurers comfort writing coverage for risks – like flood – that were once considered untouchable and enabled them to develop innovative products.  

It can be tempting to think of hurricane forecasting and modeling as being all about high-resolution images, big data, and elaborate algorithms. While these technologies are critical to developing and implementing effective models, they depend heavily on local knowledge and “boots on the ground.” 

“After an event, we quickly send engineers to survey structural damage and look for linkages to the storm’s characteristics,” said Jeff Waters, senior product manager for risk modeler RMS. “Information gathered by our people on the ground is incorporated into our reconstruction of the event to help us identify drivers of the damage and inform our models.” 

Waters recounted how, in the wake of Hurricane Maria in 2017, an RMS team arrived in Puerto Rico on October 3 – 13 days after landfall – to validate a modeled loss estimate. During the week the team spent on the island, they found that damage to insured buildings was less than expected for a storm of Maria’s magnitude. They also observed that most insured buildings featured bunker-style reinforced-concrete construction and flat concrete roofs.  

“These buildings performed very well,” Waters said. “Reinforced concrete prevents significant structural damage, and, with less drywall and tiled flooring, interior damage from water intrusion is limited. Wood and light-metal structures – which tend to be in older neighborhoods where fewer properties are insured – fared far worse.”  

Such ground-level information not only helped validate RMS’s loss estimate – it also contributes to the model’s continuous improvement. You can read a more detailed account on the RMS blog. 

Recent research illustrates how advances in geospatial technologies allow qualitative local knowledge to be incorporated into mathematical models to evaluate potential outcomes of restoration and protection projects and support plans for mitigation and recovery.  Local knowledge mapping is one such approach to marrying modern technology and the advanced analysis it facilitates to the experiences of the individuals, communities, and businesses most affected by natural disasters. 

Coastal Property, Disaster Resilience, Flood Insurance, Floods, Homeowners Insurance

Mangroves and Reefs: Insurance Can Help Protect Our Protectors

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Hurricanes and storm-related flooding are responsible for the bulk of damage from disasters in the United States, accounting for annual economic losses of about $54 billion, according to the Congressional Budget Office (CBO).  

These losses have been on the rise, due, in large part, to increased coastal development. More, bigger homes, more valuables inside them, more cars and infrastructure – these all can contribute to bigger losses. The CBO estimates that a combination of private insurance for wind damage, federal flood insurance, and federal disaster assistance would cover about 50 percent of losses to the residential sector and 40 percent of  commercial sector losses. 

Recent research illustrates the benefits provided by mangroves, barrier islands, and coral reefs – natural features that frequently fall victim to development – in terms of limiting storm damage. In many places, mangroves are the first line of defense, their aerial roots helping to reduce erosion and dissipate storm surge. A healthy coral reef can reduce up to 97 percent of a wave’s energy before it hits the shore. Reefs — especially those that have been weakened by pollution, disease, overfishing, and ocean acidification — can be damaged by severe storms, reducing the protection they offer for coastal communities. 

In Florida, a recent study found, mangroves alone prevented $1.5 billion in direct flood damages and protected over half a million people during Hurricane Irma in 2017, reducing damages by nearly 25% in counties with mangroves. Another study found that mangroves actively prevent more than $65 billion in property damage and protect over 15 million people every year worldwide.  

A separate study quantified the global flood-prevention benefits of coral reefs at $4.3 billion.  

Such estimates invite debate, but even if these endangered systems provided a fraction of the loss prevention estimated, wouldn’t you think coastal communities and the insurance industry would be investing in protecting them? 

Well, they’re beginning to.  

The Mexican state of Quintana Roo has partnered with hotel owners, the Nature Conservancy, and the National Parks Commission to pilot a conservation strategy that involves coral reef insurance. The insurance component – a one-year parametric policy – pays out if wind speeds in excess of 100 knots hit a predefined area. Unlike traditional insurance, which pays for damage if it occurs, parametric insurance pays claims when specific conditions are met – regardless of whether damage is incurred. Without the need for claims adjustment, policyholders quickly get their benefit and can begin their recovery. In the case of the coral reef coverage, the swift payout will allow for quick damage assessments, debris removal, and initial repairs to be carried out.  

Similar approaches could be applied to protecting mangroves, commercial fish stocks that can be harmed by overfishing or habitat loss, or other intrinsically valuable assets that are hard to insure with traditional approaches.  

Emerging Risks, Legal Environment

Social Inflationand COVID-19

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“Social inflation” refers to rising litigation costs and their impact on insurers’ claim payouts, loss ratios, and, ultimately, how much policyholders pay for coverage. While there’s no universally agreed-upon definition, frequently mentioned aspects of social inflation are growing awards from sympathetic juries and a trend called “litigation funding”, in which investors pay plaintiffs to sue large companies – often insurers – in return for a share in the settlement.

If the idea of social inflation was controversial before the start of the coronavirus pandemic and subsequent economic lockdown, with some calling it a hoax, the subject must now be looked at through the additional lens of COVID-19’s long-term impact on liability questions, plaintiff expectations, and juror attitudes.

A.M. Best said early in the crisis that COVID-19 could produce a big increase in social inflation. The reason: expectations that businesses would sue their insurers in an attempt to access their business interruption coverage for losses relating to the coronavirus pandemic. Such lawsuits have been and continue to be brought.

Hiscox warns about rising Florida risk

Despite reports of rate increases across the property catastrophe reinsurance sector at the mid-year renewals, a Hiscox executive has warned that these improvements could be offset by rising costs of risk in Florida, Reinsurance News reported

After consecutive heavy loss years, some fairly significant loss creep and low interest rates, coupled with the impacts of the COVID-19 pandemic, reinsurance rates reportedly trended in a positive manner at the mid-year renewals, with rises of 20% – 30%, or more in some instances. While reinsurers will welcome rate increases after a prolonged soft market and subsequent pressured returns, the improvements might not be sufficient to account for the increased risk in the region’s market, according to Ross Nottingham, Chair of North America at Hiscox Re and ILS, a division of global insurer and reinsurer Hiscox.

“Why? Because these increases haven’t yet covered our own view of the increased risk in the Florida market, which suggests that the amount of risk going into these programmes is a lot higher than thought last year,” Nottingham said. “That means you might get a 30 percent increase on the programme, but if you’ve measured the risk to the layer and established that it’s potentially worth 40 percent more in premium than it was last year, the margin has in fact decreased.”

Nottingham said the increases being seen in the Florida market in 2020, while positive, are barely covering the additional risk that is out there as evidenced by the substantial levels of adverse loss development on prior year events.

“And what’s continuing to drive loss creep? The villain of the piece is social inflation – a factor not yet captured in the vendor cat models the industry benchmarks for measuring hurricane risk.”

Nottingham says that in Florida social inflation comes from a variety of sources, ranging from assignment of benefits (AOB) litigation to loss adjustment inflation.

AOB abuse has been mitigated somewhat by recent reform legislation. But Nottingham says this reform is expected to have a limited impact on catastrophic claims being litigated and related inflation of a claim once lawyers start to get involved through other avenues.

“Despite insurers’ best efforts to change their original policy forms or to de-risk in the worst performing areas, it is expected that AOB or equivalent abuse will continue after the next big loss event,” says Nottingham. “Two years ago, the market thought the physical attributes of Irma were akin to a one in 10-year event. The loss now – with the advent of social inflation-fueled loss creep – looks more like the cost of a one in 20-year event, but there is no new science to show the expected vulnerability or hazard has changed.”

Another important element impacting reinsurance rates this year is the ongoing COVID-19 pandemic, which, Nottingham says hasn’t been factored into pricing for the months ahead. Forecasters predict an above-average level of hurricane activity in the Atlantic in 2020, which, coupled with the unprecedented impacts of the virus outbreak, presents unique challenges for the industry.

How Court Lockdowns May Turn Social Inflation Tide

COVID-19 may affect some aspects of social inflation in a different manner, Claims Journal reports.

Speaking at a recent Advisen event – Social Inflation: Truth or Fiction – defense attorney Ellen Greiper reported receiving more than the usual number of phone calls from plaintiffs’ attorneys.

“I have had a flurry of phone calls from plaintiffs who are now willing to take that [settlement] amount I had offered before,” said Greiper, a partner with Lewis Brisbois, Brisgaard & Smith. With courts having been closed as part of the general pandemic lockdown and now slowly reopening, “Those plaintiffs are realizing that they are not going to get a trial for at least two years, no matter what status their case may be and whether it’s discovery or past that. So now they are coming out of the woodwork.”

She added that the plaintiffs are “starting to realize that when we all come back and the jurors don’t have jobs or they’ve been furloughed, they’re not getting $10 million on a cervical fusion. They may realize that’s a ridiculous amount of money.”

Business Insurance, Health & Safety, Insurers and the Economy, Legal Environment, Workers Compensation

Gauging Pandemic’s Impact on Insurers

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While COVID-19’s impact on the insurance industry will require time to fully understand, litigation, legislation, and concerns about pricing and policy language will be with us for some time to come.

“Significant” changes in policy language seen

The majority of respondents to an Artemis re/insurance market survey believe the COVID-19 pandemic will result in “significant changes” to business interruption (BI) policy wordings.

In fact,  the U.K. Financial Conduct Authority (FCA) is conducting a review focused on obtaining legal clarity on policies connected to the pandemic and which claims are valid and which aren’t.

FCA’s Interim CEO Chris Woolard said recently that while some BI policies are paying out for virus-related issues, others remain “within dispute” due to ambiguities in their wordings.

Outside of the 67.6% who stated a belief that COVID-19 will drive “significant changes” in BI policy wordings, 21.6% expect a “moderate amount” of change, while the remaining 10.8% said the effect will be “limited.”

Loss estimates vary

The Artemis survey also shows 67% of respondents expect the industry to face between $80 billion and $100 billion of underwriting losses due to the pandemic. This is roughly in line with Lloyd’s of London’s earlier estimate of a $107 billion global industry impact.

But analysts from investment bank Berenberg said they believe global COVID-19 claims will be more manageable, estimating a range from $50 billion to $70 billion for the total bill. The analysts don’t specify whether this includes both life and non-life insurance claims from the pandemic, but they do point to the estimate from Lloyd’s of London as being too high.

“We estimate $50-70bn for global COVID-19 claims,” Berenberg’s analysts state. “Significantly less than the $107bn estimate reported by the Lloyd’s of London market estimate on 14 May.”

Las Vegas Hospitality Union Sues Employers

Las Vegas Culinary Workers Union Local 226 is suing several employers on the Las Vegas strip over unsafe working conditions during the coronavirus pandemic, Business Insurance reported.

The union, representing 60,000 workers, said in a statement it is asking for injunctive relief under the Labor-Management Relations Act based on the “hazardous working conditions” workers face.

The lawsuit alleges casino hotels have not protected workers, their families, and their community from the spread of COVID-19 and that current rules and procedures in place for responding to workers contracting COVID-19 have been “wholly and dangerously inadequate.”

The Culinary Union made a number of requests for policy changes, including daily cleaning of guest rooms, mandatory testing of all employees for COVID-19 before returning to work and regular testing thereafter, adequate personal protective equipment for workers, and a requirement that guests wear face masks in all public areas.

Best Warning on COVID-19 Workers’ Comp Laws

Insurance rating agency A.M. Best has warned that legal efforts in several U.S. states to expand workers’ compensation coverage to allow employees to claim for COVID-19 will have a negative impact on re/insurers, Reinsurance News reports.

The crisis has resulted in many employees now working from home, but a significant part of the workforce still needs to be present and public facing, and this is the group new state laws aim to support. For these workers, some states are looking to shift the burden to the insurer to prove that an employee contracting COVID-19 did not do so while on the job.

“This shift in the burden of proof could lead to significant additional losses to a segment already under pressure and result in increased reserve estimates and higher combined ratios,” A.M. Best said.

Given that assumptions used in pricing and actual loss emergence diverge significantly, these legislative changes will result in an increase in loss estimates and could affect earnings.

Businesses Ask Patrons to Waive Right to Sue

As businesses reopen across the U.S. after coronavirus shutdowns, many are requiring customers and workers to sign forms saying they won’t sue if they catch COVID-19, Associated Press reported.

Businesses fear they could be the target of litigation, even if they adhere to safety precautions from the Centers for Disease Control and Prevention and state health officials. But workers’ rights groups say the forms force employees to sign away their rights should they get sick.

So far, at least six states — Utah, North Carolina, Louisiana, Oklahoma, Arkansas and Alabama — have such limits through legislation or executive orders, and others are considering them. Business groups such as the U.S. Chamber of Commerce are lobbying for national liability protections.

Insurers and the Economy

P&C COVID-19 Wrap-upThe Path to Reopening

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Just as it has played a key role in responding to the COVID-19 pandemic crisis, the insurance industry will be integral to the economic recovery as businesses and communities reopen. 

Aon forms recovery coalition 

Re/insurance broker Aon has formed a coalition of companies and organizations to focus on aiding social and economic recovery in the wake of the COVID-19 pandemic, Reinsurance News reports. 

Starting in Chicago, the coalition will create a model and framework to inform criteria and guidelines to help restart the economy worldwide, with the aim of scaling the work to other key geographies, including London, New York, Singapore and Tokyo. The coalition will work closely with Illinois Governor J.B. Pritzker’s and Mayor Lightfoot’s offices to ensure alignment with public health and city/state official recommendations. 

The broker believes this will help to assess impact and measurement of efforts, evaluate the latest technologies, and develop guidelines to help navigate the challenges businesses face as society reopens. 

“We have used our expertise to assist clients in maintaining operations and mitigating risk during the pandemic—and believe we have a responsibility to play a larger role in helping the private and public sector navigate the recovery,” said Aon CEO Greg Case. 

Initial coalition members include: Abbott, Accenture, Allstate, Beam Suntory, BMO Harris, CDW, CNA, ComEd, ConAgra, Exelon, Fortuna Brands, Hyatt, JLL, McDonald’s, Mondelez, Morningstar, Motorola Solutions, Sterling Bay, Ulta Beauty, United Airlines, Walgreens, Whirlpool, and Zurich. 

S&P panelists wary of post-COVID-19 headwinds 

A panel of property and casualty insurers at the S&P Global Ratings’ Annual Insurance Conference  raised concerns about the lasting impact of the COVID-19 pandemic, Reinsurance News reports. 

S&P analysts currently believe COVID-19 related losses will total between $15 billion and $30 billion for the U.S. P&C market alone over the next two years. 

The panelists agreed that coverage for pandemic-induced business interruptions and losses will be a complicated issue for the industry to face, even though viruses are generally not a covered peril for commercial properties. 

“I never envisioned managing through a global pandemic,” said Christopher Swift of The Hartford.  

“Clearly the challenge is how you are operating both internally and externally,” said W. Robert Berkley, Jr., of WR Berkley. “It calls for flexibility, but also for the ability to plan amid uncertainty.” 

Panelists said workers’ compensation claims due to COVID-19 illnesses could be an inflection point, though, as states scrutinize policies given the rising number of these claims. If coverage is expanded, insurers will need to evaluate this risk and price accordingly. 

Moderator Kevin Ahern, managing director and analytical manager, S&P Global Ratings, noted that the U.S. P&C market faces many headwinds, not just those related to COVID-19. These include competitive pressures, the pricing/underwriting/reinsurance environment, and evolving regulatory and legislative developments. 

Iowa Legislature approves COVID-19 liability shield 

Legislation headed to Iowa Gov. Kim Reynolds’ desk would provide liability limitations on potential COVID-19 lawsuits for a broad range of businesses and organizations — among them restaurants, retail establishments, meatpacking plants, churches, medical providers and senior care facilities — provided they followed public health guidance, Business Record reported. 
 
Senate File 2338, the COVID-19 Response and Back-to-Business Limited Liability Act, would prohibit individuals from filing a civil lawsuit against a business or health care organization unless it relates to a minimum medical condition (a diagnosis of COVID-19 that requires in-patient hospitalization or results in death) or involves an act that was intended to cause harm or that constitutes actual malice. 
 
The legislation would protect tenants, lessees and occupants of any premises — including any commercial, residential, educational, religious, governmental, cultural, charitable or health care facility — in which a person is invited in and is exposed to COVID-19.   

However, liability would extend to anyone who “recklessly disregards a substantial and unnecessary risk that the individual would be exposed to COVID-19,” or exposes the individual to COVID-19 through an act that constitutes actual malice or intentionally exposes the individual to COVID-19. 

The provisions, which would be retroactive to Jan. 1, also shield health care providers from liability for civil damages “for causing or contributing, directly or indirectly, to the death or injury of an individual as a result of the health care provider’s acts or omissions while providing or arranging health care in support of the state’s response to COVID-19.” 

Ill. workers comp measure becomes law 

Legislation signed into law in Illinois will provide worker compensation benefits for front-line and essential workers who contract COVID-19 on the job under certain conditions, Business Insurance reports. 

Gov. J.B. Pritzker signed H.B. 2455, which will provide death benefits for first responders who were presumably infected with COVID-19 on duty and also revises state code to expand unemployment benefits and enhance sick pay and leave for workers who contract the virus. 

Under the law, employers can rebut claims under certain conditions, including if they can demonstrate the workplace was following current public health guidelines for two weeks before the employee claims to have contracted the virus; provide proof the employee was exposed by another source outside the workplace; or that the employee was working from home for at least 14 days before the claimed injury. 

The law also says first responders, including police officers and firefighter who die after testing positive for COVID-19 or its antibodies, are entitled to death benefits. However, the virus must have been determined to have been contracted between March 9 — the first day of Illinois’ governor-mandated stay-at-home order — and Dec. 31, 2020. Under the law, the date of contraction is either the date of diagnosis with COVID-19 or the date the first responder was unable to work due to symptoms that were later diagnosed as related to COVID-19 infection, whichever occurred first. 

Disaster Preparedness, Disaster Resilience

Modern Building Codes Would Prevent Billions In Catastrophe Losses

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A new study by the Federal Emergency Management Agency (FEMA) could be instrumental to its effort to persuade states and localities to adopt up-to-date building codes. 

The study, titled Building Codes Save: A Nationwide Study of Loss Prevention, quantifies the physical and economic losses associated with flooding, hurricanes, and earthquakes that have been avoided due to buildings being constructed according to modern, hazard-resistant building codes and standards.  

In California and Florida – two of the most catastrophe-prone U.S. states – the study found that “adopting and enforcing modern hazard-resistant building codes over the past 20 years indicate a long-term average future savings of $1 billion per year for those two states combined.” 

“The combined savings from these two states demonstrate the high value of adopting I-Codes for hazard mitigation as a return on investment,” FEMA wrote, referring to model construction codes published by the International Code Council. 

“This gives us the foundation to back up the recommendations that we’re making,” FEMA building engineer Jonathan Westcott said at a recent conference on flood prevention. 

The study is part of FEMA’s broader effort to reduce the growing cost of natural disasters by convincing states and municipalities to adopt post-2000 building codes. Two-thirds of the nation’s localities haven’t adopted recent model codes, Westcott said. 

Communities often don’t understand the long-term benefits of adopting stronger codes. 

“Instead of just hearing about how expensive it is to add a foot of freeboard,” Wescott said, “they’re going to understand the financial benefits of doing that so they can make a balanced decision on what’s best for their community.” 

Cyber Risk, Legal Environment, Regulation

Senate Panel Meets On COVID-19 Fraud

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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: 

  1. COVID-19-related scams, including the sale of fraudulent medical equipment and nondelivery scams;  
  1. Cybercrime like BECs, exploiting increased telework; 
  1. Ransomware and other activities that could disrupt pandemic response; and 
  1. 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.