All posts by Maria Sassian

Business Risk, Emerging Risks, Insurance Industry

World’s Insurance Markets Hit Hard by COVID-19: Triple-I

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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.”

Business Insurance, Business Risk

Bad Faith and Business Income Interruption Policies During the Coronavirus Pandemic

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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.

Careers and Employment, Insurance Industry

Latest report shows surprising job gains for the insurance industry

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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.

Auto Insurance, Insurance Industry

Insurers respond to COVID-19 (6/05/2020)

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.

In May, Triple-I estimated that insurers would return more than $10 billion. Since then a number of carriers have disbursed additional funds, including AAA insurers, Allstate, American Family, Farmers, State Farm, MAPFRE, Travelers and USAA.

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.

Disaster Preparedness, Insurance Industry

2020 Atlantic hurricane season will be well above average, according to updated Colorado State forecast

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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.

The full forecast is available here.

Preparedness tips*

  • 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.

*Preparedness tips courtesy of National Hurricane Conference.

Triple-I has hurricane facts and statistics here.

Business Insurance, Business Risk

FAQ: Riots and Business Insurance

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Riots across the U.S. and the subsequent damage to thousands of businesses have many business owners asking what their business insurance policies will cover. In this interview, Triple-I Vice President of Media Relations Loretta Worters answers some frequently asked questions about business insurance and what it covers.

Are businesses covered for property damage from riots?

Yes, they are. Business property that has been damaged by riot, civil commotion. vandalism and fire are covered under virtually all businessowners and commercial insurance property policies. This typically includes damage to windows, doors, light fixtures, store windows and plate glass on office fronts. There is also coverage for the contents of the building such as furniture, office supplies, computers or machinery that may be either damaged or stolen.

Should a business insure its building and contents at replacement value or actual cash value?

A business may have the option to insure its business property at replacement value or actual cash value. The difference is that replacement value coverage can help a business replace its 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.

What about loss of income?  

Businesses that are forced to suspend operations or limit hours due to rioting, vandalism or civil commotion and have coverage for the loss of income under business income insurance (also known as business interruption, or BI) do have coverage. Coverage is typically triggered if there is direct physical damage to the premises.

What if a business is unable to access its property due to a government order? If there is a curfew in place, how will that impact a business?

While insurance policies vary, typically there is business interruption coverage for civil authority orders, such as curfews (when a business has reduced hours) or when a business is unable to access its property due to a government order requiring the business to close. Such coverage nearly always requires the existence of property damage within some limited geographic radius surrounding the policyholder’s location. This often ranges from 1 to 10 miles. Typically civil authority coverage has a waiting period of 24 to 72 hours, depending on the policy, before a policyholder can begin claiming the benefits of coverage. Coverage typically lasts up to four weeks, but the time period can be extended by paying an additional premium. However, once a curfew is lifted and business can resume, coverage ceases. 

Is business income coverage subject to a deductible?

Under most policies, business income coverage is subject to either a waiting period, which acts like a form of deductible or a monetary deductible. 

How will the amount of the business income loss be determined for a business?

Under most policies, business income coverage includes both net income (the profit a business earns after expenses and allowable deductions) and the cost of continuing normal operations.

What information does a business need to support its business income claim?

Most insurers require the following:

  • Profit and Loss statements
  • Sales records
  • Income tax returns
  • Rent or mortgage statements
  • Payroll records

What if a business vehicle has been damaged in a riot?

Damage to vehicles is covered under the optional comprehensive portion of an auto policy. This provides reimbursement for damage to the vehicle and its contents caused by fire, falling objects, vandalism or riot. Comprehensive coverage also reimburses a business if the vehicle’s windshield is cracked or shattered. Some companies offer glass coverage without a deductible.

Any advice for business owners?

Know your risks! Every smart business owner recognizes that business insurance is an essential element of an overall business plan. It should be factored in with fixed operational expenses like utilities. Without adequate coverage, business owners may have to pay out-of-pocket for costly damages from a riot, hurricane or other disaster, which could spell financial ruin.

Disaster Preparedness, Disaster Resilience

Wildfires and Insurance: Learn How to Prepare Financially

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

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

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

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

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

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

Business Risk, Insurance Industry

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

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

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

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

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

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

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

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

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

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

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

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

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

Disaster Preparedness

NOAA predicts above normal 2020 Atlantic Hurricane Season

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

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

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

Hurricane preparedness during the COVID-19 pandemic

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

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

The CDC has issued the following prep tips:

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

Useful links

Hurricane preparedness tips and resources

State Hurricane Fact Sheets

Hurricanes Facts & Statistics