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Business Insurance, Business Risk, Legal Environment

N.C. Ruling Goes Against Prevailing Judicial Wisdom on COVID-19 Business Interruptions

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A North Carolina court has ruled that Cincinnati Insurance Co. must pay 16 restaurants’ claims for business income (interruption) losses due to government-ordered COVID-19 shutdowns – a decision that runs counter to those of most judges who’ve ruled on similar cases.

As hundreds of COVID-19-related lawsuits regarding business interruption coverage make their way through U.S. courts, judge after judge has found in favor of insurer defendants. The central point has been that coverage depends – as specified in the insurance policies – on the policyholder suffering a “direct physical loss.”

“Business income (interruption) policies generally reimburse a business owner for lost profits and continuing fixed expenses when its facilities are closed due to direct physical damage from a covered loss, such as a fire, a riot, or a windstorm,” said Triple-I CEO Sean Kevelighan. “Insurers have been prevailing nationwide in nearly all of the litigated COVID-19 BI lawsuits because, as North Carolina’s Insurance Commissioner has noted, ‘Standard business interruption policies are not designed to provide coverage for viruses, diseases, or pandemic-related losses because of the magnitude of the potential losses.’ ”

 “Policy language controls whether COVID-19 interruptions are covered,” said Michael Menapace,  a professor of insurance law at Quinnipiac University School of Law and a Triple-I Non-Resident Scholar. “The threshold issue will be whether the insureds can prove their business losses are caused by ‘physical damage to property’.”  

Cincinnati Insurance has said it plans to appeal the ruling.

Learn More from The Triple-I Blog

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U.K. BUSINESS INTERRUPTION LITIGATION SEEMS UNLIKELY TO AFFECT U.S. INSURERS

BUSINESS INTERRUPTION VS. EVENT CANCELLATION: WHAT’S THE BIG DIFFERENCE?

BUSINESS INTERRUPTION COVERAGE: POLICY LANGUAGE RULES

CHUBB CEO SAYS BUSINESS INTERRUPTION POLICIES ARE A GOOD VALUE AND WORK AS THEY SHOULD

U.S. TREASURY WEIGHS IN ON DEBATE SURROUNDING BUSINESS INTERRUPTION INSURANCE

TRIPLE-I CEO AMONG PANELISTS DISCUSSING BUSINESS INTERRUPTION INSURANCE LEGISLATION

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BUSINESS INTERRUPTION CLAIMS RELATED TO COVID-19

Auto Insurance

Auto Insurance Claims Satisfaction at a Record High During Pandemic

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Auto insurers used the decline in auto damage claims during the COVID-19 pandemic as an opportunity to refine their claims processes, and customers have noticed.

According to the J.D. Power 2020 U.S. Auto Claims Satisfaction Study, the customer services improvements have led to  record-high  customer satisfaction. These improvements include ensuring that representatives are always immediately available; completing work when promised; and providing multiple services at first notice of loss.

“It is extremely rewarding to see the insurance industry’s exceptional work being recognized by its most important critic: the American consumer,” said Sean Kevelighan, CEO, Triple-I.  “During the pandemic, the nation’s auto insurers have worked non-stop to provide relief and economic security to policyholders who had to file a claim.  This is in keeping with their role as society’s financial first responders,” he said in a Triple-I news release.

Key findings of the J.D. Power study include:

  • Record-high customer satisfaction with auto claims: Overall satisfaction with the auto insurance claims process increases to a record-high 872 (on a 1,000-point scale), up four points from 2019. This is the third consecutive year of improvement in auto claims satisfaction, which has been driven by increases in performance across nearly every factor measured in the study: claim servicing; estimation process; repair process; rental experience; and settlement. The only factor that has not improved year over year is first notice of loss, which remains flat from 2019.
     
  • Cycle time improves as claims volume slows: Auto insurers have upped their game during the pandemic, taking advantage of the drop in frequency to increase the speed of processing for claimants. Overall cycle time for claimants with reparable vehicles has improved to just 10.3 days during the pandemic, down from the pre-virus average of 12.6 days.
     
  • Quantifying the COVID-19 boost: This year’s study was fielded in four waves from November 2019 through September 2020, giving J.D. Power the ability to compare pre-virus levels of customer satisfaction with those experienced during the pandemic. Notably, the number of claimants who say they “definitely will” renew with their existing insurer is 76% during the pandemic versus 72% pre-virus. 
  • Use of direct repair program (DRP) shops improves satisfaction: The industry’s growing use of directly affiliated repair shops is paying off with a significantly higher overall satisfaction score (888) than for independent repair shops (844). This is driven by quicker cycle times among DRP shops and regular updates on progress.

“The sharp decline in claims volume during the pandemic has served as a test case for the industry in how to make improvements in service delivery that translates directly to increased satisfaction and increased intent to renew,” said Tom Super, head of property and casualty insurance intelligence at J.D. Power. “This is important because it demonstrates that efforts to improve claimant service delivery translates directly to improved business outcomes. The challenge now, of course, will be maintaining that high level of service as claims volumes start to normalize.”

Given the reduced mileage on U.S. roadways this year, U.S. auto insurers are also returning over $14 billion to their customers nationwide in response to reduced driving during the pandemic, according to a Triple-I estimate.

Business Risk, Cyber Risk, Insurance Industry

Businesses Large and Small Need to Be Cyber Resilient in a COVID-19 World

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By Loretta Worters, Vice President, Media Relations, Triple-I

Advanced Persistent Threat groups and cybercriminals are likely to continue to exploit the COVID-19 pandemic over the coming weeks and months.  Weak and stolen passwords, back doors, applications vulnerabilities, malware and insider threats have been among the most common causes of data breaches in the past.  But according to a recent Willis Towers Watson report new threats include:

  • Phishing, using the subject of coronavirus or COVID-19 as a lure;
  • Malware distribution, using coronavirus or COVID-19-themed lures;
  • Registration of new domain names containing wording related to coronavirus or COVID-19; and
  • Attacks against newly and often rapidly deployed remote access and teleworking infrastructure.

Security breaches have increased by 67% since 2014, yet businesses fail to take the proper precautions.   Ransomware has become big business for “professional” criminals, crippling large and small businesses alike.  But small businesses are especially attractive targets because they have information that cybercriminals want, and they typically lack the security infrastructure of larger businesses. 

A remote workforce due to COVID-19 has made many organizations address issues of remote access and the need for multifactor authentication and virtual private networks (VPNs). But others – less cyber savvy— have left themselves exposed to cyberattacks.

In addition, vishing (via telephone) and smishing (via text message or WhatsApp) attacks have also increased in frequency, and in a work from home environment where colleagues and clients are increasingly connecting via mobile phones, vulnerability increases, according to a new AON Report. Short message attacks will generally seek to redirect a victim to a compromised website in order to harvest user credentials.

According to a recent survey by the Small Business Administration , 88% of small business owners felt their business was vulnerable to a cyber-attack – and that was before the pandemic. Yet many businesses can’t afford professional IT solutions, have limited time to devote to cybersecurity, or don’t know where to begin.

In observance of National Cybersecurity Awareness Month,  Triple-I offers U.S. businesses these seven tips for improving their cybersecurity and averting data breaches:

  1. Understand your cyber risks. Businesses are vulnerable to cyberattacks through hacking, phishing, malware, and other methods. 
  2. Train Staff. Those engaged in cyberattacks find a point of entry into a business’ systems and network. A business’ exposure can be reduced by having and enforcing a computer password policy for its employees.
  3. Keep Software Updated. Businesses should routinely check and upgrade the major software they use.
  4. Create back-up files and store off-site. A business’ files should be backed up either as an external hard drive or on a separate cloud account. Taking these steps are vital to data recovery and the prevention of ransomware. Ransomware is when a cyberattack results in a situation where a business is asked to pay a fee to regain access to its own data.
Careers and Employment, Insurance Industry

Insurance Careers Corner: A few minutes with Kristian Ottesen, intern, CNA Brokerage Strategy team

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By James Ballot, Senior Advisor, Strategic Communications, Triple-I

It’s an understatement to say that the COVID-19 pandemic has affected all areas of our personal and professional lives. Amid widespread disruption, however, people are finding ways to overcome the distance of “social distancing” and to make remote work seem less, well, remote.

Insurance business summer internships are a vital path for educating students about the industry, and for businesses to evaluate promising recruits. However, lockdowns and other measures to contain the spread of the coronavirus forced many companies to re-evaluate their internship programs. Several organizations have stepped in to ensure continuity of internship programs, including insurance businesses, industry trade groups, and in particular, Gamma Iota Sigma (GIS), a student society with 94 chapters serving more than 5,000 members across North America.

Through their Virtual Internships program GIS worked with dozens of companies to offer essential training and education opportunities through project-based or defined duration remote work. And what these businesses have discovered is that remote internships offer some built-in advantages over on-site work, including access to people who are ready-made to succeed amid disruption, as well as the ability to engage with recruits from a greater diversity of geographic locations, talents and backgrounds.

As part of the Triple-I Blog’s “Insurance Careers Corner” features series, we spoke with student interns about their experiences during summer 2020 and their insurance career journey so far.

Next up is Kristian Ottesen, a senior at Virginia Commonwealth University, where he’s studying underwriting in excess and surplus lines at that institution’s School of Business’s Risk and Insurance Studies Center.

Kristian spent part of the summer of 2020 as part of a three-person team consulting on the impact of COVID-19 for CNA, a major commercial lines carrier.

Triple-I Blog (III): You had an internship lined up before Summer 2020? What happened?

Kristian Ottesen (KO): I was a part-time intern with Allianz Partners in the Spring, which was cancelled after the first day. Other internship opportunities—including one with a regional broker in Richmond were cancelled or put “on hold.”

(III): You’re on track for a career in insurance. When did you decide this was what you wanted, and what are some factors that contributed to this decision?

(KO): I was majoring in Management and Entrepreneurship at VCU’s School of Business. I was urged by some GIS members and alumni to follow my interest into studying RMI (Risk Management/Insurance). I have to say that it’s been the best decision I’ve made in college so far.

(III): How long was your internship with CNA? Tell us a bit about the work you were doing there.

(KO): My internship ran from June through the first week of August. A lot of what I did involved independent research and reading, with the goal of finding data, news and reporting that fed into charting CNA’s strategy for interacting with broker clients during the COVID-19 pandemic. My team [of three interns] submitted research analysis for feedback from our project supervisor.

(III): What skills and knowledge did you pick up along the way—and what insights do you most want to share with others [who are looking into remote internships]?

(KO): Teamwork, of course. Problem-solving and flexibility [learning in the workflow]. My team and I met weekly via Skype; I encountered some unanticipated advantages to remote work, as well as a few serious drawbacks. Perhaps most important was honing my time management and organizational skills: In addition to working with CNA [via the GIS remote internship program], I was doing coursework in financial modeling at VCU and working landscaping to help pay tuition. 

(III): Any key takeaways or advice from this experience that you’d like to share? 

(KO): There’s no substitute for working directly with and learning from people in the industry rather than from textbooks or in a classroom. If you get the opportunity, take it!

Auto Insurance

Policyholder Dividends Soar as Auto Insurers Respond to Pandemic

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Policyholder dividends have more than tripled so far this year, due largely to approximately $14 billion auto insurers have returned to policyholders in response to reduced driving and fewer accident claims related to the COVID-19 pandemic.

According to National Association of Insurance Commissioners (NAIC) data from Standard & Poor’s Global Market Intelligence, insurers issued $4.8 billion through the second quarter of 2020, almost $3.4 billion more than the same period a year ago. The bulk of that, $3.3 billion, is a result of pandemic-related driving patterns.

Insurers in the first half also booked $4.7 billion in credits through lower rates, and another $1.6 billion was booked as an underwriting expense, according to a Triple-I analysis of industry results.

In the second half of the year, Triple-I projects, insurers will return to customers another $338 million in dividends. Rate decreases of $4.1 billion will make up the remainder of the $14 billion in givebacks.

State Farm, the country’s largest auto insurer by premiums written, in April announced a $2 billion dividend to its auto insurance customers, averaging a 25 percent credit on these customers’ premiums through May 31. Combined with the premium credit and an 11 percent reduction in premium rates, the company said, these initiatives will save customers $4.2 billion through the end of 2020.

USAA, through a series of three dividend announcements, has returned $1.07 billion to auto policyholders and said it also is adjusting its rates.

On top of these, the industry has provided approximately $280 million in charitable giving specifically related to the pandemic.

Cyber Risk, Legal Environment, Technology

Victimized Twice? Firms Paying Cyber Ransom Could Face U.S. Penalties

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Recent advisories from two U.S. Treasury agencies –  the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) – indicating that companies paying ransom or facilitating such payments to cyber extortionists could be subject to federal penalties are a reminder of the importance of good cyber hygiene.  

The notices also underscore businesses’ need to consult with knowledgeable, reputable professionals long before a ransomware attack occurs and before making any payments. 

Ransomware on the rise 

In a ransomware attack, hackers use software to block access to the victim’s own data and demand payment (usually in Bitcoin or another cryptocurrency) to regain access. It has been a growing problem in recent years, and such attacks have intensified since the COVID-19 pandemic has led to many people working from home for the first time.  

The FBI warns against paying ransoms, but studies have shown that business leaders today pay a lot in the hope of getting their data back.  An IBM survey of 600 U.S. business leaders found that 70% had paid a ransom to regain access to their business files. Of the companies responding, nearly half have paid more than $10,000, and 20% of them paid more than $40,000. 

Sanctioned entities 

The OFAC advisory specifically targets transactions benefiting individuals or entities on OFAC’s Specially Designated Nationals and Blocked Persons List, other blocked persons, and those covered by comprehensive country or region embargoes (e.g., Cuba, the Crimea region of Ukraine, Iran, North Korea, and Syria). 

If you pay ransom to anyone in these categories, you could be fined or even jailed for breaching the  International Emergency Economic Powers Act (IEEPA) or the Trading with the Enemy Act (TWEA). Penalties can vary widely, depending on the circumstances.  

How is a business owner to know?  

“Companies should rely on experts to assist with their due diligence and work with the FBI,” writes law firm BakerHostetler in a recent blog post. “Experience in incident response is key, and your counsel should be an informed, confident partner as you navigate this rapidly evolving area.” 

“Before a payment is made,” the law firm writes, “a company generally retains a third party to conduct due diligence to ensure that the payment isn’t being made to a sanctioned organization or a group reasonably suspected of being tied to a sanctioned organization. Additionally, checks are in place to ensure that anti-money laundering laws are not being violated.”

Many insurers are working with their clients to put such practices in place and taking a variety of other steps to address the threat of ransomware attacks. Cyber-insurance premiums started rising 5% to 25% late last year, according to Robert Parisi, U.S. cyber product leader at insurance broker Marsh & McLennan. Parisi called the increases “dramatic” but said insurers have not scaled back coverage. 

Marsh has issued a client advisory — What OFAC’s Ransomware Advisory Means for US Companies — explaining what U.S. businesses need to know about the OFAC advisory and the importance of completing an OFAC review before payment of ransom demands.  Marsh’s advisory also makes recommendations for re-assessing ransom incident response plans, mitigating ransomware risk, and preparation for and recovery from ransomware and cyber extortion attacks. 

Health & Safety, Insurance Industry

Insurers Help Victims Find Freedom from Domestic Violence Through Financial Empowerment

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COVID-19 Could Further Impact Intimate Partner Violence Survivors

By Loretta Worters, Vice President – Media Relations, Triple-I

Financial security and access to resources can make all the difference to domestic violence victims when deciding to leave an abusive relationship. And insurance is an important component of financial planning that can help survivors move forward.

Financial abuse is a common tactic used by abusers to gain power and control in a relationship. The forms of financial abuse may be subtle or explicit, but in in general, include tactics to conceal information, limit the victim’s access to assets, or reduce accessibility to the family finances. Financial abuse – along with emotional, physical, and sexual abuse – includes behaviors to intentionally manipulate, intimidate, and threaten the victim in order to entrap that person in the relationship. In some cases, financial abuse is present throughout the relationship and in other cases financial abuse becomes present when the survivor is attempting to leave or has left the relationship.

Repercussions from the pandemic – layoffs, loss of income, living with abusers due to stay-at-home orders, restricted travel and closures of key community resources – are likely to dramatically increase the incidence of domestic violence, which may further hamper a victim from leaving an abusive situation. 

Survivors struggling to get back on their feet may also be forced to return to their abuser.  That’s why it’s so important survivors understand how insurance works and what a critical role it can play in gaining financial freedom and economic self-sufficiency.

In support of Domestic Violence Awareness Month, the I.I.I. offers financial strategies to protect victims before and after leaving an abusive relationship. They include securing financial records, knowing where the victim stands financially, building a financial safety net, making necessary changes to their insurance policies and maintaining good credit. 

The National Coalition Against Domestic Violence (NCADV) reports that 10 million people are physically abused by an intimate partner each year, and 20,000 calls are placed to domestic violence hotlines each day. In addition, 85 percent of women who leave an abusive relationship return because of their economic dependence on their abusers. Furthermore, the degree of women’s economic dependence on an abuser is associated with the severity of the abuse they suffer.

“Home is often times a dangerous place for survivors of domestic violence, and COVID-19 exacerbates the circumstances, due to the abusers’ ability to further control,” said Ruth Glenn, president and CEO of the NCADV. “Tactics abusers use include ruining the credit of their victim as well as financial and digital abuse, such as stimulus funds being co-opted by abusers to an increase in domestic online harassment,” she said. 

Experts agree that domestic online harassment can come in many forms, from impersonating a victim by email in order to sabotage her work, to controlling the influx of information about the pandemic to make her more fearful and reliant on the abuser.

The Allstate Foundation’s domestic violence initiative has been committed to ending domestic violence through financial empowerment, providing survivors with the education and resources needed to achieve their potential again and equip young people with the information and confidence they need to help prevent unhealthy relationships before they start.  This year the Foundation contributed $500,000 to help the National Network to End Domestic Violence support more than 100 local domestic violence organizations. The Foundation also provided funding for the National Domestic Violence Hotline to enable remote-working technology and has worked with these organizations who are urging Congress to pass a COVID-19 relief package that addresses the housing, economic, physical and mental health needs of survivors of domestic and sexual violence and the advocates on the frontlines that need additional resources to ensure the safety of survivors and their staff.

“One of the most powerful methods of keeping a survivor trapped in an abusive relationship is not being able to support themselves financially,” Glenn explained. “That’s why insurance and financial education are so important,” she said.  “Education can save a life.”

Disaster Preparedness, Disaster Resilience, Insurance Industry

Mitigation Matters – and Hurricane Sally Proved It

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 A FORTIFIED roof (left) sustained no damage from Hurricane Sally, the neighboring house (right) did not fare as well.

The FORTIFIED construction certification was developed by the Insurance Institute for Business and Home Safety (IBHS) to protect homes against severe weather. In this post Fred Malik, managing director, FORTIFIED, and Chuck Miccolis, managing director, Commercial – IBHS, talk about how the system held up in Alabama against Hurricane Sally.

In 2004, Hurricane Ivan slammed into Alabama causing widespread devastation. Unwilling to let the same damage happen again, thousands of homeowners and commercial property owners have turned to IBHS’s FORTIFIED program to protect their properties and prepare for the next big storm. 

Last month, the ‘next big storm’ came. Exactly sixteen years since Hurricane Ivan made landfall, Hurricane Sally crawled its way onto the Alabama coast. The Category 2 storm subjected homes and businesses to more than 8 hours of relentless winds. While the aftermath of Sally’s landfall vividly showed too many buildings are still not built as strong as they could be, those in the area built to the FORTIFIED standard provide hope for a more resilient future.

More than 16,000 FORTIFIED properties were put to the test and they demonstrated homes and businesses can be built better. In the days following Sally’s landfall, IBHS conducted field assessments across coastal Alabama to better understand building performance, including dozens of FORTIFIED properties. To date, indications are that more than 90% of the thousands of FORTIFIED buildings had zero to minor cosmetic damage. As a wind standard, FORTIFIED performed to its design.

The evidence is clear driving through Baldwin County, Alabama – home and business owners who had a FORTIFIED Roof didn’t need a blue tarp, didn’t have significant water intrusion through the roof, and businesses were able to re-open as soon as flooding abated and power was restored. Most observed damage was only cosmetic, and disruption was minimized, meaning those who made the decision to strengthen their properties aren’t dealing with the headache of rebuilding. Because FORTIFIED provides layers of protection, it stopped the cascade of damage before it started.

Some FORTIFIED homeowners were even able to offer refuge for neighbors in need.  Having benefited from local incentives to build stronger, some FORTIFIED homeowners in Orange Beach experienced no damage from wind or wind-driven rain, while neighbors were forced to make repairs as well as tear out and throw away much of the contents of their homes.

Another poignant example took place at the Lodge at Gulf State Park, which had been completely destroyed by Hurricane Ivan. Determined to overcome the vulnerabilities Ivan had so devastatingly exposed, the property owners wanted to be a leader in demonstrating to the community how to build back stronger. They turned to the FORTIFIED program.

The hotel was rebuilt in 2019 to the FORTIFIED standards, and IBHS verified the construction process and material selection complied with those standards. Evaluators, trained by IBHS, guided construction and design teams to minimize flaws that otherwise may have gone unnoticed. As a result, when Hurricane Sally’s eyewall passed directly over the Lodge, it not only continued operations, it also housed employees who did not have FORTIFIED homes. Additionally, many media outlets, including The Weather Channels, chose to stay at the lodge to cover the storm and, some unknowingly, benefitted from the protection of FORTIFIED to report on the hurricane, perhaps prompting FEMA Administrator Pete Gaynor to emphasize “mitigation works.”

Continuing the post-storm research, IBHS will develop an analysis of key factors influencing the performance of these FORTIFIED structures. Preventing avoidable damage is one of IBHS’s three imperatives, and Sally demonstrated how FORTIFIED achieves that mission. For more information, go to fortified.org.

Insurance Industry

Hurricane Delta insured losses estimated at up to $3 billion

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Flood waters from Hurricane Delta surround structures destroyed by Hurricane Laura on October 10, 2020 in Creole, Louisiana. Hurricane Delta made landfall near Creole as a Category 2 storm initially leaving some 300,000 customers without power. (Photo by Mario Tama/Getty Images)

Hurricane Delta made landfall in Creole, Louisiana, on October 9 as a Category 2 storm with 101 mph sustained winds and a 9.3-foot storm surge. Landfall in Cameron Parish was within 13 miles of where Category 4 Hurricane Laura made landfall in late August. Delta knocked out power to over 500,000 customers in Louisiana (a quarter of the state’s homes), plus another 300,000 in parts of east Texas and western Mississippi. It was a record-setting 10th continental U.S. landfall of a named storm during a single hurricane season and record-tying fifth hurricane continental U.S. landfall in a season.

Similar paths by Hurricanes Laura and Delta in Louisiana triggered the state law that stipulates that policyholders are not required to pay a hurricane deductible twice in the same storm season. State Insurance Commissioner Jim Donelon said that for people who did not exhaust their deductible during Laura, the remainder would apply to Delta only if the unused amount is larger than the standard all-perils deductible. It is not known yet how many people suffered damage from Delta.

Insured loss estimates for Hurricane Delta range from $1 billion to as high as $3 billion, according to catastrophe risk modelling specialist AIR Worldwide. The company warns of the potential for loss increase due to hurricane Delta’s impacts coming so soon after hurricane Laura’s. Karen Clark & Company’s estimate that onshore insured losses will be about $1.25 billion and CoreLogic estimates that onshore and offshore insurance market losses from Delta will be between $1.5 billion and $2.7 billion.

During a live interview on The Weather Channel’s Weather Underground on Monday, October 12, the Triple-I’s Mark Friedlander discussed property losses for Louisianans who were impacted by hurricanes Delta and Laura. He also provided claims-filing tips.

Business Insurance, Insurance Industry, Legal Environment

The Future of American Insurance and Reinsurance Releases a Digital Business Interruption Insurance Explainer

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Future of American Insurance and Reinsurance (FAIR) has released a new interactive tool to help showcase the need for a federal solution to pandemic relief. The Business Interruption Insurance “explainer” utilizes digital storytelling techniques to help clarify information about this complex topic.

The digital explainer complements the FAIR campaign’s other recently-released digital assets, including a video overview of BI and pandemics, and a primer deck that provides quantitative backing to the assertion that pandemics cannot be privately insured. 

As trial attorneys attempt to retroactively force uninsurable pandemic coverage in business interruption insurance contracts, this tool is designed to show what business interruption insurance covers, how surplus helps pay for covered perils such as hurricanes and wildfires, how insurers have stepped up to help policyholders, and the need for a federal solution to the pandemic.

ABOUT FAIR
FAIR is an initiative of the Insurance Information Institute and its member companies whose mission is to ensure fairness for all customers and safeguard the industry’s longstanding role as a pillar of economic growth and stability.

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