Most insurance experts believe legislative proposals that would require insurers to cover business-interruption (BI) claims stemming from COVID-19 related shutdowns, even if the insurance policies exclude pandemic-related losses, threaten the solvency of the insurance industry. This is the finding of a survey conducted by the Wisconsin School of Business and the Center for Insurance Policy and Research of the National Association of Insurance Commissioners (NAIC).
The survey also found most experts believe the private
market will have a difficult time efficiently supplying BI coverage for
pandemics, given the systemic, correlated, and non-diversifiable nature of the
peril.
Many survey respondents felt only the federal government can
provide coverage for correlated risks because it can spread the cost through
taxation, long-run borrowing, and deficit financing. But whether provided by
only the federal government or the private market, the pricing and
affordability of coverage were indicated to be issues for both.
Most said they believe the private market can supply BI
coverage for pandemics with an effective federal partnership. Some questioned
whether the Terrorism Risk Insurance Program (TRIP) is a good model for
pandemic insurance, given the similarities between the pandemic and terrorism
perils.
On May 18 the Insurance Information Institute (Triple-I) announced
the launch of the Future of American
Insurance & Reinsurance (FAIR) campaign. FAIR will focus on ensuring the
insurance industry is able to sustain its longstanding role as the country’s
backbone of economic growth and stability.
FAIR is being set into motion as the country seeks a pathway
to economic recovery in the wake of the COVID-19 pandemic. As communities
reopen and restart, insurers will play a critical role in the process,
continuing to provide financial protection for the millions of Americans who
depend on them for indemnification from risks they rightfully insured. Yet the
industry is threatened with growing calls to retroactively alter insurance
policies, cover the economic cost of widespread closures, and adjust workers’
compensation criteria, among other new developments.
Sean Kevelighan
“FAIR was created to safeguard the ability of the
insurance industry to support its customers at a time when policymakers, the
business community, and the general public are searching for solutions to our
ongoing economic turmoil. And while we recognize the need for financial relief
is severe, any attempts to make insurers retroactively responsible for a global
pandemic puts the solvency of many insurers at risk,” said Sean
Kevelighan, CEO, Triple-I.
“While the insurance industry has been doing its part
to step up and support their communities in this time of crisis, pandemics are
fundamentally uninsurable events. The federal government remains the only
entity with the financial resources to help businesses recover from a systemic
event of this magnitude. With the support of the public sector and the
innovation of groups like insurers in the private sector, we can come together
to work toward recovering from this catastrophe and build a more resilient
future,” he added.
Insurance carriers are an integral part of local communities
across the country, employing over 2.7 million Americans and contributing
nearly $565 billion to the nation’s Gross Domestic Product (GDP) in 2018. The
industry has cumulatively offered consumers more than $10 billion in premium
relief on auto insurance this spring and made over $220 million in charitable
donations to COVID-19-related causes.
FAIR will serve as a go-to educational resource for the
media, business community, and broader public in the coming weeks and will
actively engage in a variety of insurance and COVID-19-related developments
across America.
For more information visit fairinsure.org and follow @FAIRInsure on
Twitter.
Triple-I’s “Insurance Careers Corner” series was created to highlight trailblazers in insurance and to spread awareness of the career opportunities within the industry. This month Kris Maccini, director, social media, Triple-I, interviewed Demetrius Gray, Founder & CEO of WeatherCheck.
WeatherCheck, an insurtech that analyzes
weather data to help insurers predict severe weather impact to properties, was
a finalist in 2019’s Resiliency Innovation Challenge.
Demetrius shared insights for building and growing his innovative business, and how he’s advising on severe weather prep amid the pandemic.
Demetrius Gray
Name: Demetrius Gray
Current
Role: Founder
& CEO
Years
at WeatherCheck:
3.5
Tell
us about WeatherCheck? What led you to found this company and build your career
in insurance?
I
was a storm contractor. I chased hailstorms across the continental United
States. Most of my work was around understanding insurance losses, and it gave
me an intimate knowledge, which I used to create WeatherCheck. While there are
numerous weather-related sources, there wasn’t a great place to assess whether
something was damaged or not. For example, would an event at a particular
property rise to the level that the insured should file a claim?
The
insurance industry today is already thinking about creating efficiencies in the
claims process. We allow property owners to sign up on WeatherCheck, type in
any address in the country, and it exposes severe weather loss associated with
that property. We work from the premise that informed people make informed decisions.
At our core, WeatherCheck works to give people quality information so that they
can make the right decision at the right time.
We’re
in the middle of a significant global catastrophe. How has this impacted your
business and conversations around severe weather?
When
the shutdown started happening [throughout the stay at home orders], we had
conversations with emergency managers around the country on what does emergency
management look like for people at home. Normally, they would be at their office
and those structures are built and fortified better than the average
single-family home in the country. What we have seen is an increase in overall
hazard-related deaths this year. The 2020 tornado season has killed more people
than it has in the past few years because people are sheltering in place at
home and risk is greater. We are preparing for these insights now, and we
expect to see even greater risks heading into summer heat waves.
There
is also an infinite question about the current infrastructure. Normally, people
are placed into shelters post event, but that infrastructure has been displaced
largely because the volunteers have been displaced. The inverse of that
conversation is that the risk has been shifted to commercial enterprises and
hotels. If the hotels are closed, then it’s where do we shelter people who have
been displaced? We’re encouraging community partners to have conversations with
stakeholders around planning, including reopening hotels for evacuations
quickly.
Over
the next year, what is top of mind as you grow your business?
Partnerships
are important. We have been working with partners across all sectors to
continue to grow the product itself. How do we help individuals who don’t
necessarily understand their risks or the policies that they’ve purchased to
get what they need? The way we’ll do that well over the next 12-24 months is by
partnering with stakeholders who also have interest in that same asset. Whether
that’s mortgage companies, cities, or banks–that’s where we’ll be focused while
continuing to represent the interests of the insurers.
What
setbacks have you faced in building your business and how did you move past
them?
We’re
the only black-owned meteorology company in the entire country. You get a whole
lot more ‘no’s’ than ‘yes’s’ and those answers are based on unconscious biases.
We had to be very honest with ourselves about what are bias
characteristics–whether it’s race, gender, location–and we had to decide in the
business plan how we were going to overcome those biases. For us, it meant that
maybe venture capital (VC) wasn’t going to be a strong path for us because the
data doesn’t prove out that they would invest in a woman or minority-run
company. We built a profitable business with strategy based on data and that
also influenced what the product looked like.
Through
this process, we decided to go direct to policyholders. The data showed us that
policyholders are largely unbiased and that they want what they want when they
want it. If you have what they want, they will forgo internal biases to make
their buying decisions. By focusing on the data and taking out the emotion, it
allowed us to see viable prospects up front.
What
are your goals for the future in terms of where you want to take your career
and your business?
In
the future, I could see WeatherCheck offering other products and services to
get the insured at a place of homeostasis that is far better than what it is
today. If we look at the number of individuals who are underinsured for flood
or underinsured for fire–the system really sits at the nexus of being able to
drive some of that. We’ll probably see some unique boutique offerings come out
of selling new insurance products geared at solving those challenges. We’ll be
driving better data to continue to inform decisions. We’d like to empower
agents and brokers throughout the country to do an even better job of keeping
the insured better informed. Agents and brokers will play an impactful role in
continuing to drive value. It is very personal when people have a loss from an
event and that personal pipeline is a far better approach than a chatbot or AI.
On May 14 the Insurance Information Institute (Triple-I), co-hosted a
webinar with ResilientH20 Partners that focused on managing
extreme weather events in the midst of the COVID-19 pandemic. The panelists discussed
the changing role of stakeholders across the private sector, governments and
non-profit/NGOs.
The panelists drew from their backgrounds across government, business and insurance to discuss the immediate challenges stemming from the COVID-19 pandemic, the downturn in the economy, and near-term flood and storm threats.
Dr. Michel Léonard,
Vice President & Senior Economist, Triple-I
Richard Seline,
Managing Director, ResilientH20 Partners
Panelists:
Dr. Daniel Kaniewski,
Managing Director, Public Sector Innovation, Marsh & McLennan
Jeff Moseley, CEO,
Texas Association of Business
Katie Sabo, State and
Local Leader, Managing Director, Public Sector Partnership, Aon
Moderator:
Chris Tomlinson,
Business Columnist, Houston Chronicle
Some of the key
takeaways include:
Having
a business continuity plan is a must-have for any business
Flooding
can occur anywhere (not just high-risk zones) – so getting flood
insurance is crucial
In
the midst of the pandemic, we can’t lose sight of the importance of investing
in mitigation and resilience, which will help on a material level post-event
The
COVID-19 crisis is putting unprecedented pressure on local governments – if private
investors have ideas for disaster mitigation, especially ones where return on
investment can be shown – now is the time to bring them, and they will be heard
Insurers
are and will be playing bigger roles in partnering with local governments to
build public/private solutions to disaster resilience
This
webinar is the first in a new series of thought leadership sessions that aims
to be a catalyst for public-private-partnerships focused on enhancing
pre-disaster risk mitigation at each step of the resilience value-chain, from
financing to development, management, technology selection and
crisis-management.
The Atlantic
hurricane season starts on Monday, June 1, but could get an early start this weekend with Tropical Storm Arthur.
The U.S. Treasury Department issued a letter to members of
Congress on May 8 which argued that proposals to force insurers to retroactively
change business interruption (BI) policies to pay losses arising from the
COVID-19 pandemic threaten the ability of the industry to serve policyholders
and might lead to the insolvency of the industry.
In the letter, Principal Deputy Assistant Secretary for Legislative Affairs Frederick Vaughan writes: “While insurers should pay valid claims, we share your concerns that these proposals fundamentally conflict with the contractual nature of insurance obligations and could introduce stability risks to the industry.”
He goes on to say that the Treasury will collaborate with insurer groups, federal lawmakers and states on “addressing losses attributable to the current and potential future pandemics.”
On May 8 the Labor Department reported that the U.S. labor market lost a historic 20.5 million
nonfarm jobs in April, sending the unemployment rate to 14.7 percent. The worst
affected sectors are leisure and hospitality, which lost 7.7 million workers.
Dr. Steven Weisbart,
Triple-I’s chief economist, points out that the employment data for March 2020*
for the insurance industry are startling largely because they are at odds with
employment changes in many other lines of work.
Employment
at property/casualty carriers held steady in March 2020 at 559,100–the same as
in January and only 800 fewer than February.
Employment
at life/annuity carriers held essentially
steady in March 2020 at 347,600–the same as in October 2019 and down a bit
from the 348,000-349,000 in November 2019 through February 2020.
Employment at health and medical insurance carriers rose in
March 2020 to 585,100–its highest-ever level, up 1,500 from February 2020.
Employment at agencies and brokerages rose in March 2020 to
852,400–its highest ever level, up 1,700 from February.
* The insurance industry/sector-specific data are not seasonally adjusted and are one month behind the national data.
Coronavirus-related insurance
litigation is likely to move beyond business interruption coverage and into
workers comp and general liability policy lines as states begin to lift
restrictions on economic activity.
“There’s just going to be a
bloodbath of litigation over the next 10 years,” former Mississippi Attorney
General and counsel at Weisbrod Matteis
& Copley Jim Hood told Bloomberg Law this week. “Even if the governor tells you to open up, that’s not
going to protect you from a lawsuit.”
The Trump administration and
Republican lawmakers are insisting that an employer liability shield be included in the next round of pandemic relief legislation, but
it’s unclear whether Democrats will go along with the idea.
California Facilitates Workers Comp for Virus Claims
California Gov. Gavin Newsom signed an executive order Wednesday that will make it easier for essential
workers who contract COVID-19 to obtain workers’ compensations benefits. The
governor said the order streamlines workers’ comp claims and establishes a
rebuttable presumption that any essential workers infected with COVID-19
contracted the virus on the job. In effect, the change shifts the burden of
proof that typically falls on workers and instead requires companies or
insurers to prove that the employees didn’t get sick at work.
The California Federation of
Labor, which asked for the change in a March 27 letter to the governor and
legislative leaders, applauded the order. Dozens of business groups, led by the
California Chamber of Commerce, pushed back last month on the labor
federation’s request, saying the changes would force businesses to be the
“safety net to mitigate the unprecedented outcomes of this natural disaster and
the government’s response.”
If only 10 percent of health care workers contract COVID-19 and all of their claims are deemed compensable, workers’ compensation loss costs for that sector could double or even triple in some states, according to an analysis by the National Council on Compensation Insurance (NCCI).
Claims Journalreports
that, in NCCI’s worst-case scenario, 50 percent of workers are infected and 60
percent of their claims are deemed compensable. That would result in $81.5
billion in increased costs —or two and half times current workers’ compensation
loss costs — for the 38 states and District of Columbia, where NCCI tracks
claims data. If
eligibility is limited to first responders and healthcare workers and only 5
percent of those workers are infected, Claims Journal says, the increase
in costs would be just $2 billion, assuming 60 percent of claims are paid.
Whether
business interruption coverage in property policies applies to COVID-19-related
losses has become one of the dominant insurance debates during this pandemic.
Lawsuits have been filed – some even before insurers have denied a claim –
seeking to establish that policyholders are entitled to coverage for losses
sustained during the current shutdowns.
The debate often focuses on a simple phrase in the insurance policy: “direct physical loss or damage.” Business interruption coverage can apply to losses stemming from direct physical loss or damage. Losses that didn’t come from direct physical damages aren’t covered.
Michael Menapace, Esq. Wiggin and Dana LLP
“A property policy may, for
example, pay to repair the damage caused by a fire and may cover the loss of
business during the reconstruction period,” writes Michael Menapace, a professor of insurance law at
Quinnipiac University School of Law and a Triple-I
Non-Resident Scholar. “But here’s the rub. Are the business interruptions related to
COVID-19 caused by physical damage to property?”
Insurers say no, arguing that “damage to property” requires
structural alteration like one would find in a typical claim, where, say, a
fire destroyed the interior of a building or wind damaged windows and
furniture.
The virus, on the other hand, leaves no visible imprint. Left alone, it can’t survive long and, after it has perished, whatever it was attached to is as good as before. Even if some remediation is needed – like cleaning metal surfaces – insurers might argue that this is no different from cleaning dirt off a surface. They cite cases in which judges have ruled there’s no physical damage from mold if the mold can be cleaned off.
Departing from common sense
Others depart from this common-sense, legally recognized
definition. Some plaintiffs’
attorneys argue that if coronavirus
is not direct physical damage then insurers would not have created an exclusion
for viruses in the first place. Many insurers added exclusions for losses from
viruses and communicable diseases after the SARS outbreak in 2003.
Policy
language, Menapace says, controls whether COVID-19 interruptions are covered. Some policies
have standard terms and exclusions, some provide “all-risk” coverage –
covering loss arising from any fortuitous cause except those specifically
excluded – and others are variations on these types.
“The threshold issue will be whether the insureds can prove their
business losses are caused by ‘physical damage to property’,” he writes.
In
past cases, where there is direct physical loss to property – such as
contaminated food that couldn’t be sold or a building rendered useless by asbestos
contamination – courts have found business interruption coverage was
triggered. But when an earthquake caused a power loss in two factories, courts
found the only injury was a shutdown of manufacturing operations that didn’t
constitute “direct physical loss or damage.”
What About Current Claims?
Are
business interruptions related to COVID-19 the result of the government
restrictions, or are they due to the physical loss to their property?
Menapace writes that many of the current claims would seem not to trigger the standard
coverage in a commercial business interruption policy, but he cautions that this
might not always be the case.
A
true “all-risk policy,” he writes, “generally would not distinguish between
business interruption losses due to government action or direct physical loss
because all-risk policies cover all losses except those specifically excluded.”
But
most commercial property policies aren’t true “all-risk policies”; instead,
they typically cover business interruption losses “caused by direct physical damage
to property” at or near the insured premises.
“That
will be difficult burden for policyholders to meet,” Menapace says.
Some
policies exclude coverage for losses resulting from mold, fungi, or
bacteria. Because COVID-19 is a virus, that exclusion might not
apply. Other policies exclude viruses, diseases, or pandemics.
“If
a policyholder believes it may have a claim,” Menapace advises, “it should
provide prompt notice to its insurer(s) so it does not risk a denial based on
late notice. Likewise, once the claim has been made, it is essential that
the insured cooperate with the insurer, including providing timely proof of
loss.”
U.S. auto insurers will return over $10 billion to their
customers nationwide, according to an Insurance Information Institute estimate, in response to reduced driving during the
pandemic.
We’ve listed many of the companies that are offering refunds here and here. These lists are not
exhaustive, so be sure to check with your insurer to see if they are offering
refunds or credits. All
premium and rate adjustments are subject to regulatory approval.
On May 5, Allstate
Corp. CEO Tom Wilson said the
insurer would probably grant another rebate to auto insurance customers. The second round of rebates would vary
according to region. On April 6, the insurer announced that it would return
more than $600 million in premiums to its policyholders because the nation’s
drivers were traveling 40 percent to 55 percent fewer miles following
stay-at-home orders. Wilson noted that American drivers are now traveling more
miles than in mid-April, but the total is still 30 percent to 40 percent lower
than before the pandemic. Wilson said the next refund would be more precise and
that Allstate is now distributing the initial payback, which represents 15
percent of monthly premiums in April and May.
Horace Mann, a provider of affordable insurance for educators,
is giving customers a credit of 15 percent of two months of auto premiums, as
well as a grace period through June on auto, property, supplemental and life
insurance payments; enhancing coverages, including extending personal auto
coverage to those delivering food, medicine, and other essential goods; and
including Identity Fraud Advocacy Services with its Educator Advantage Program
for all home, condo, and renters customers to protect against the increased
risk due to increased online activity.
Other customer support programs
Erie
Insurance is
adding gift card and gift certificate reimbursement coverage to the company’s
ErieSecure Home® policies, in response to the recent changes affecting
businesses across the United States. The additional feature, included at no
additional cost, would reimburse customers for remaining balances on eligible
gift cards that no longer can be used at independently owned and operated local
businesses due to business closures.
Supporting communities
Foremost Insurance and Bristol West Insurance, members of
the Farmers Insurance Group of Companies, announced they have
contributed $500,000 to the Trusted
Choice COVID-19 Relief Fund established by the Independent Insurance
Agents & Brokers of America, Inc. (IIABA – Big “I”). The Fund
provides economic aid to independent insurance agencies, brokerages, and their
owners and employees affected by the COVID-19 pandemic.
Horace Mann donated $100,000 to DonorsChoose “Keep Kids
Learning” fund, an initiative to help teachers equip the most vulnerable
students with educational materials at home. The company provides free online
teaching resources, to help teachers adapt to remote learning, and it supports
a number of foundations in its home state of Illinois.
Reach out to us in the Comments section and let us know what
your company is doing to help ease the impact of COVID-19.
Severe convective storms—tornadoes, hail, drenching thunderstorms with lightning, and damaging straight-line winds—are among the biggest threats to life and property in the United States. They were the costliest natural catastrophes for insurers in 2019, and this year’s tornado season is already shaping up to be the worst in nearly a decade.
A new
Triple-I paper describes how population
growth, economic development, and possible changes in the geography, frequency,
and intensity of these storms contribute to significant insurance payouts. It
also examines how insurers, risk managers, individuals, and communities are
responding to mitigate the risks and improve resilience through:
Improved
forecasting,
Better
building standards,
Early
damage detection and remediation, and
Increased
risk sharing through wind and hail deductibles and parametric insurance
offerings.
The 2020 tornado season coincided with most of the U.S. economy shutting down over the coronavirus pandemic. This could affect emergency response and resilience now and going into the 2020 hurricane season, which already is being forecast as “above normal” in terms of the number of anticipated named storms.
