All posts by Jeff Dunsavage

Social Inflationand COVID-19

July 6, 2020 Jeff Dunsavage Leave a comment

“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

June 30, 2020 Jeff Dunsavage Leave a comment

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

June 17, 2020 Jeff Dunsavage Leave a comment

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

June 16, 2020 Jeff Dunsavage Leave a comment

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

June 16, 2020 Jeff Dunsavage Leave a comment

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.

Disaster Preparedness, Flood Insurance

Hurricanes Don’t Just Affect Coasts; Experts Say: “Get Flood Insurance”

June 9, 2020 Jeff Dunsavage Leave a comment

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.”

Legal Environment

IRC Study: Social Inflation Is Real, And It Hurts Consumers, Businesses

June 2, 2020 Jeff Dunsavage Leave a comment

“Social inflation” is the name used to describe growth in liability risks and costs related to litigation trends. A new white paper by the Insurance Research Council (IRC) examines this phenomenon and shows that insurers’ losses across several business lines have accelerated rapidly in recent years – much more rapidly than economic inflation alone can explain.

Some have tried to downplay the importance of social inflation and even cast doubt on its existence. The IRC study draws from a range of industry and scholarly resources to show that it does exist and hurts individuals and businesses who rely on insurance.

Among the drivers the IRC examines are:

Shifts in public sentiment about litigation
Increasing numbers of very large jury verdicts
Tort reform rollbacks
Legislative actions to retroactively extend or repeal statutes of limitation
Increased attorney advertising and involvement in liability claims
Proliferation of class actions
Emergence and growth of third-party litigation financing

Using loss data published by the National Association of Insurance Commissioners (NAIC), the IRC documents loss trends in several key insurance lines, including commercial and personal auto insurance and product liability coverage. The report notes that loss trends reflected in the data “are consistent with anecdotal observations and concerns about the impact of social inflation on insurance claims costs.”

The IRC links these trends to rising claims and losses that in turn lead to more expensive insurance for businesses and consumers. While the analysis is based on data and trends that predate the COVID-19 pandemic, the IRC notes that state efforts to impose business interruption coverage for economic losses under insurance policies that specifically exclude bacteria and virus-related losses are a current example of the forces that drive social inflation.

Social Inflation: Evidence and Impact on Property-Casualty Insurance is a valuable resource that explains the causes and impacts of social inflation. It can be downloaded from the IRC website.

Further reading:

Florida’s AOB Crisis: A Social-Inflation Microcosm

Florida Dropped From 2020 “Judicial Hellholes” List

Disaster Preparedness

COVID-19 Wrap-up: Pandemic Complicates Hurricane Preparation

May 26, 2020 Jeff Dunsavage Leave a comment

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.

Life Insurance

Can Life Insurers Cover All COVID-19 Death Claims?

May 21, 2020 Jeff Dunsavage Leave a comment

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.

Business Insurance, Business Risk, Legal Environment

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

May 21, 2020 Jeff Dunsavage Leave a comment

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.

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