All posts by Jeff Dunsavage
Triple-I CEO Among Panelists Discussing Business Interruption Insurance Legislation
Triple-I CEO Sean Kevelighan today joined legislators and legal experts to discuss proposed measures that could retroactively rewrite business interruption insurance policies.
“The insurance industry is applying forward-thinking solutions to take care of its customers, communities, and employees during the COVID-19 crisis,” Kevelighan said, citing more than $10 billion so far returned to customers through premium relief; $200 million in charitable donations; and insurers pledging not to lay off employees during the crisis and implementing innovative solutions to conduct daily operations while respecting social distancing. “We’re deeply engaged in mitigating the economic impact of this pandemic.”
But the industry can only do these things – while keeping its promises to policyholders and preparing for impending catastrophes – if policyholder surplus isn’t eliminated, as it could be if some of the proposed legislative “solutions” were enacted.
Legislation has been discussed or introduced in Louisiana, Massachusetts, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, and South Carolina that would retroactively enact business interruption coverage into existing policies despite an absence of the physical damage required in property policies and/or express exclusions for communicable diseases in those policies.
Kevelighan explained how policyholder surplus provides a cushion that enables insurers to meet their obligations, even when large, unexpected catastrophes occur. He showed how retroactively rewriting insurance contracts could make it impossible for insurers to play their critical role as “financial first responders.”
The scenarios he discussed could cost the industry $150 billion and $380 billion per month – “quickly eliminating the surplus it has taken the industry centuries to accumulate.”
And they would do this in the midst of a tornado season that is shaping up to be the deadliest in eight years and as a “more active than normal” hurricane season approaches.
Kevelighan made his remarks during a webinar sponsored by the National Council of Insurance Legislators (NCOIL) and the Rutgers Center for Risk and Responsibility at Rutgers Law School. Other panelists included NCOIL President and Indiana Rep. Matt Lehman; New Jersey Assemblyman Lou Greenwald; and Jay Feinman and Adam Scales, Professors of Law at Rutgers Law School and Co-Directors of the Rutgers Center for Risk and Responsibility.
The panelists all expressed support for the creation of a COVID-19 Business Interruption and Cancellation Claims Fund, similar to the 9/11 Victims Compensation Fund enacted by Congress in 2001, for businesses suffering from costs related to the interruption of their businesses, as well as the many associations that have had to cancel events. Funded by the federal government and operated by a special federal administrator, it would facilitate distribution of federal funds and liquidity to impacted businesses during this time of incalculable business interruption.
Click here to view the presentation.
CORONAVIRUS WRAP-UP: PROPERTY AND CASUALTY (4/22/2020)
CORONAVIRUS WRAP-UP: PROPERTY AND CASUALTY (4/21/2020)
CORONAVIRUS WRAP-UP: Data and Visualizations (4/20/2020)
The coronavirus crisis continues to generate data that can be valuable for understanding and decision making. Below are just a few resources that may be of interest to insurers and the people and businesses they serve.
| COVID-19 Mortality Projections for U.S. States |
| Graphs from the University of Texas COVID-19 Modeling Consortium show reported and projected deaths per day across the United States and for individual states. |
| The Verisk COVID-19 Projection Tool |
| The Verisk COVID-19 Projection Tool has been made available to enhanceunderstanding of the potential number of worldwide COVID-19 infections and deaths. It provides an interactive dashboard that leverages the AIR Pandemic Model. |
| How State Insurance Departments Are Responding to COVID-19 |
| This interactive map from PC360 highlights bulletins and procedures released by state insurance departments as of April 15, 2020. |
| Tracking U.S. Small and Medium Business Sentiment During COVID-19 |
| Small and medium-size businesses account for roughly 44% of the U.S. economy and provide employment to about 59 million people. McKinsey is tracking their sentiment to gauge how their views on economic activity, employment, and financial behavior—as well as their expectations about financial institutions and public authorities—change as a result of ongoing public and private interventions. |
Mixed ReactionsTo Workers CompCOVID-19 Expansions
State workers’ compensation boards around the country are amending rules for benefits payouts related to coronavirus, and several states have expanded or are considering widening access to workers comp coverage for COVID-19 beyond first responders and health care workers.
Kentucky and Illinois this week implemented emergency orders to provide access to public-facing essential workers, such as grocery, pharmacy, Postal Service and day care workers. And Minnesota’s legislature unanimously approved a bill that guarantees people in high-risk jobs who contract COVID-19 workers comp coverage without having to prove the infection was a direct result of their job. Most licensed peace officers, firefighters, paramedics, nurses, health care workers, correction officers, workers at secure state facilities, workers at long-term care facilities, and child-care providers are among the classes included in the Minnesota measure.
Lawmakers in Louisiana and New Jersey also have proposed legislation to expand COVID-19 coverage beyond first responders and health care workers, who traditionally are covered if they are exposed to a communicable disease in the course of their work.
While employee groups and unions applaud these moves, the changes could hurt the workers comp industry, some experts warn.
Robert Hartwig, clinical associate professor and director of the Risk and Uncertainty Management Center at the University of South Carolina in Columbia, said the changes present “a potentially enormous and unfair burden on workers compensation insurers that’s completely unprecedented in history.”
Hartwig pointed to the difficulty proving that the transfer of a communicable disease occurred on the job and added, “This is potentially extraordinarily costly to workers comp insurers, but also to many large employers who have either very high-deductible programs or are largely self-insured.”
He said these changes also could be “potentially catastrophic” to workers compensation state funds.
CORONAVIRUS WRAP-UP: PROPERTY AND CASUALTY (4/17/2020)
Triple-I Briefing: Surplus Is Key to Insurers KeepingPolicyholder Promises
The insurance industry can meet its obligations to policyholders in the midst of the coronavirus pandemic – but government interventions being discussed threaten to unravel this safety net and could make it impossible for insurers to affordably provide essential coverage in the future.
These are among the conclusions shared by Triple-I chief economist Steven Weisbart and senior economist Michel Léonard in a briefing today that explained how the industry already has been affected by the pandemic and subsequent recession; how policyholder surplus ensures funds are available to cover claims; and how any attempt to retroactively apply this pandemic to business interruption policies would cause irreparable harm to the financial stability of the property-casualty insurance industry.
“Insurers price their policies for expected claims, with additional monies set aside for unexpected claims, such as those which are filed during exceptionally severe hurricane seasons,” Dr. Weisbart said. “The policyholders’ surplus backs up every line of insurance each insurer writes. It is calculated as assets, minus liabilities, and rises and falls due to changes in asset values.”
Dr. Weisbart and Dr. Leonard explained in detail how surplus works and showed how – under a variety of plausible scenarios – retroactively rewriting insurance contracts could make it impossible for insurers to play their critical role as financial first responders.
“If insurers nationwide had to pay business interruption policy claims for which they collected no premium, it could cost the industry each month anywhere from roughly $150 billion to nearly as high as $380 billion,” said Léonard, noting that the smaller amount accounted for the U.S.’s small and medium-size businesses that currently have business interruption coverage and the larger amount includes those who do not. “Pandemic-caused losses are excluded from standard business interruption policies because they impact all businesses, all at the same time.”
If you missed the briefing, you can view the presentation.
Related Links:
Coronavirus: Issues and impacts
Triple-I Fact Sheet: Insurers Are Engaged In the COVID-19 Crisis
Triple-I Publication: A Firm Foundation: How Insurance Supports the Economy
Triple-I Publication: A Firm Foundation: How Insurance Supports the Economy
Triple-I Blog:
Putting Car Insurance Prices Into Perspective
As car insurers help their customers cope with the pandemic’s economic impact through premium refunds and other relief measures and some groups complain the efforts are insufficient and ask regulators to make insurers pay more, it’s worth noting that the cost of insuring motor vehicles has grown more slowly than inflation over the past 12 months and well below prices for hospital services and car repairs – two key drivers of car insurance claims.
As the chart below shows, year-over-year increases in auto insurance prices have trailed growth in the Consumer Price Index, the most widely used measure of inflation.
“Auto premiums are kept relatively low by competition among insurers,” explained Triple-I chief economist Steve Weisbart. “This has been happening even as two major contributors to claims have grown much faster. In the case of hospital services, prices have not just been rising – growth has been accelerating since last July.”
You read that right. Even as two of the biggest contributors to claims – the money insurers pay policyholders after accidents – have grown faster than inflation, the prices policyholders pay for coverage have grown more slowly than consumer prices generally.
Many factors come into play when an insurer determines an individual’s premium payment – age, driving record, where and how far one generally drives, and much more; and, let’s face it, no one likes to pay for insurance or to see their payments go up.
But think about it: even though you might roll the dice if your state didn’t require you to have insurance, would that really be a wise move? Would you really want to be on the hook for the full cost of damage to your car or that of another driver? Or for the liability associated with someone’s injury or death?
That premium payment provides an awful lot of value in terms of peace of mind – IF you think about it. And, if you think further about it, you have more control over how much you pay for car insurance than you do over other products and services. You can shop around. You can change how much or what type of coverage you buy. You can bundle auto with other coverages. You can get fewer tickets and improve how you handle your credit.
And as usage-based insurance, powered by telematics, gains traction, your options will only increase.
Compare this with, say, cable and satellite TV. Your ability to shop around is quite limited (though improving with each new streaming opportunity that comes online). The products you really want come bundled with others you would never pay for if you had a choice.
And the prices of these services, as the chart below shows, continue to grow at rates well above both CPI and car insurance.
