Tag Archives: covid-19 business interruption

Business Insurance, Business Risk, Insurers and the Economy, Risk Management

Maritime Supply-Chain Vulnerabilities: Why This Won’t Be the Last Timea Megaship Gets Stuck

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

(Photo by Mahmoud Khaled/Getty Images)

When mega containership Ever Given wedged herself across a one-way section of the Suez Canal during a sandstorm last month, it brought 10 percent of global trade to a halt for a week. The ship – owned by Taiwanese container transportation and shipping company Evergreen Marine Corp. – was finally refloated and traffic in the canal was able to resume.

A Risk & Insurance cover story, published by Triple-I sister organization Risk & Insurance Group (RIG), describes how – in the context of a trend toward larger container vessels and a global supply chain already disrupted by COVID-19 – this incident should serve as a wake-up call for insurers.

Looking at the Ever Given grounding and disruption of canal traffic from a marine insurance perspective, RIG author Gregory DL Morris highlights the impact on cargo insurance claims and the potential for cargo spoilage. He also discusses compromised maneuverability of these massive vessels in high winds and references an increasing number of on-board fires, challenges surrounding salvage, and lack of suitable repair facilities, noting, “Underwriters need to be aware of this.”

Despite the likelihood that immediate property loss in this case will be minimal, megaships pose serious challenges to marine insurance and risk management. According to MDS Transmodal, a transport and logistics research firm, average vessels capacity grew 25 percent between 2014 and 2018, with ultra-large containerships accounting for 31 percent of the total capacity deployed in the second quarter of 2018. Transmodal attributes this trend to industry consolidation through mergers and acquisitions, as well as growing trade lane co-operation through alliances, slot sharing, and vessel-sharing agreements.

Even as traffic through the canal resumes, terminals will experience congestion. In addition, the severe drop in vessel arrival and container discharge in major terminals will aggravate existing shortages of empty containers available for exports. Delays in shipments, increased costs, and product shortages are therefore likely. 

“The fact is that an already heavily disrupted maritime supply chain has taken another hit that will further affect its fluidity, with long-term consequences related to congestions, lead times and predictability,” said Jens Roemer, chair of the Sea Transport Working Group of the International Federation of Freight Forwarders.

While traffic through the canal is now moving, the global supply chain’s vulnerabilities may only now be beginning to become clear.

“Whether a blizzard in Texas or a sandstorm in Egypt,” Morris writes, “the narrow focus on minimal inventories that rely upon just-in-time delivery leaves little allowance for weather or accident.”

Catastrophes, Insurance Industry

Triple-I CEO: 2020 Proved Insurers Can Lead Through Disruption

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Sean Kevelighan


The U.S.’s auto, home, and business insurers have more than met the challenges raised by COVID-19 over the past year, according to Sean Kevelighan, CEO, Insurance Information Institute (Triple-I).

“2020 proved how this industry can lead through disruption. We can adapt. We can innovate. We can keep our promises and pay claims—even during a global pandemic,” Kevelighan said, in remarks today to the Reinsurance Association of America’s (RAA) virtual 2021 Catastrophe Risk Management conference.

The net income after taxes for U.S. auto, home, and business insurers cumulatively dropped to $35 billion in the first nine months of 2020, a 25-plus percent decrease from where the insurers’ net income after taxes stood after the first nine months of 2019, Kevelighan said. The deterioration was attributable in part to the severity of 2020’s hurricanes, wildfires, and civil unrest.

Despite these events, the Triple-I’s CEO noted how insurers provided an estimated $14 billion in premium relief to locked-down drivers, donated nearly $300 million to charitable causes, and largely retained its national workforce of 2.8 million Americans as premiums grew modestly.

“If you look at net premiums written growth, we were actually at the 10-year average last year,” Kevelighan continued, reporting how auto, home, and business insurers realized three percent net premiums written growth year-over-year when comparing the first nine months of 2020 to the same timeframe in 2019. Net premiums written are premiums written after reinsurance transactions.

COVID-19’s arrival in the U.S. also prompted the Triple-I’s launch last year of its Future of American Insurance & Reinsurance (FAIR) campaign, he continued, as policymakers, such as those in the U.S. House of Representatives, sought clarity on what property damages were, and were not, covered under standard business income (interruption) insurance policies.

“The FAIR campaign was meant to be an aggressive way to inform the discussion,” Kevelighan stated, “Our customers needed financial support and we knew the federal government was the only entity who could provide it.”

In assessing 2021’s key issues, Kevelighan said he thought telematics and social inflation would take on greater import among insurers and their policyholders. “Telematics is one way our industry can drive safety on our roads,” the Triple-I’s CEO said, referring to the devices drivers can place voluntarily in their vehicles to reduce the cost of auto insurance and to encourage safe driving habits. “Social inflation is getting worse. These massive litigation lawsuits are really putting a strain on the cost of liability insurance,” Kevelighan stated.

Following his remarks, Kevelighan participated in a live question and answer session moderated by Frank Nutter, president, RAA. Katrin Zitzelsberger, senior epidemiologist, Munich Re, and Damon Vocke, partner, Duane Morris, joined them.

Business Risk, Insurance Industry, Legal Environment

Study: Most Americans disapprove of COVID-19 lawsuits, prefer government aid for small businesses

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The vast majority of Americans believe COVID-19 relief should come via public policy solutions — and not litigation — according to polling released last week by the American Tort Reform Association (ATRA). 

 Key takeaways from the poll include:

  • 59% say those harmed by the pandemic should get assistance from policies passed by elected officials, versus just 7% who say they should get payouts from lawsuits;
  • 74% say small businesses affected by COVID-19 should be supported by government grants or loans versus 6% who say lawyers should help small businesses pursue legal claims.
Source: ATRA

More information on the polling results is available on ATRA’s website.

For information on the principles the broader insurance industry has put forth for a government-backed pandemic policy solution, click here

Business Risk, Disaster Resilience

Knead to Know – Basics for Business Survival

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Dimitri Mikhaylov working the front register at Chelsea Bagel of Tudor City

By Kris Maccini, Social Media Director, Triple-I

In support of Small Business Saturday, November 28, the Insurance Information Institute spotlights Chelsea Bagel, a business that has stayed resilient during the pandemic.

Deciding on your local bagel shop is a quintessential part of becoming a New Yorker. I’ve made this city my home for the past 17 years now, and it’s the first thing I do every time I move into a new neighborhood. About four years ago, I made Midtown East, Manhattan my home, and it didn’t take long for Chelsea Bagel of Tudor City to become my go-to shop.

Chelsea Bagel of Tudor City is owned by Dimitri Mikhaylov. He opened the shop and its sister restaurant, Chelsea Bagel & Café , along with his brother in 2015. Owning his own bagel shop became a dream after Dimitri invested in another coffee shop a few years prior. Never did he imagine just five years later, the world would be in a global pandemic.

The bagel and spread counter
at Chelsea Bagel of Tudor City

“Prior to the pandemic, we were doing fine covering expenses. We had a steady flow of regular customers and high traffic from tourists. Facing the pandemic and this tough economy has been one of our biggest challenges,” says Dimitri.

In the early days of the pandemic, Dimitri had to make some difficult decisions to keep his doors open. He made reductions in staff, changed hours of operation, and withheld his own paycheck in order to pay his employees.

“The first four weeks of the pandemic, I spent a lot of my own money to meet business expenses, and I didn’t pay myself for 10 weeks,” he says. “My wife and I also had to make the decision to postpone our home mortgage for six months in order to pay for the business.”

“During that time, I thought that my business interruption insurance would have been able to help cover our losses, but after contacting my insurer, I realized pandemics are not covered. The next step was to apply for a government PPP loan.”

The small business PPP loan allowed Dimitri both to cover his expenses and hire back some staff. Since the summer, business has picked up, and he’s slowly welcoming back his regulars. There has been a 25% increase in customers in recent months compared to the start of the pandemic where business decreased by 75%.

In addition to the PPP loan, Dimitri advises that small business owners really look at their expenses to see where they can cut off spending. At the height of the pandemic, he chose to do all the buying himself, which drastically cut down the cost of goods for his shop.

“I’m hoping that the economy returns and brings customers back,” Dimitri says. “This area [New York City] relies on tourists.”

“It crossed my mind not once but many times to give up the business during all this, but hope kept me going. I have a family to feed and my employees have families to feed.”

Business Insurance, Business Risk, Emerging Risks, Health & Safety, Risk Management

House Panel Discusses Approaches to Manage Future Pandemic Risk

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That the insurance industry alone can’t be expected to cover future pandemic risk seemed to be a given at yesterday’s hearings by the House Finance Subcommittee on Housing, Community Development, and Insurance.

But, as is so often the case, the devil is in the details.

The session – Insuring Against a Pandemic: Challenges and Solutions for Policyholders and Insurers – was chaired by Rep. William Lacy Clay. In his opening statement, Clay said, “It is not realistic or practical to expect the insurance industry to shoulder the astronomical cost of a global pandemic. The American Property and Casualty Insurance Association has estimated that paying all [COVID-19-related] claims, regardless of exclusions, would amount to $1 trillion per month.”

With respect to business interruption coverage claims currently being adjudicated, Clay referenced both the virus exclusions in most commercial property policies and the lack of “direct physical damage or loss” in COVID-19-related cases.

John Doyle, president and CEO of global insurance broker Marsh, testified on the importance of a public-private partnership to address pandemic risk, as well as to the need to “act now” on a solution for future pandemics.

“Acting now on a public-private pandemic risk solution will accelerate the economic recovery by reducing uncertainty,” Doyle said. “Moving forward, capital markets will seek assurances that companies have protection against prospective pandemic risk. The pace of recovery will depend upon the nature and degree of confidence in the marketplace.”

Doyle said the credit and power of the U.S. government is essential – “at the same time, I believe the insurance industry has a role to play.”

The Pandemic Risk Insurance Act (PRIA), introduced by Rep. Carolyn B. Maloney of New York, provided the jumping-off point for the testimonies and discussions of alternative proposals. PRIA, patterned after the Terrorism Risk Insurance Act (TRIA) put in place after the 9/11 terrorist attacks, was generally recognized as a good start – but several other structures were proposed to address perceived weaknesses.

One is the Business Continuity Protection Program (BCCP), advanced by the National Association of Mutual Insurance Companies (NAMIC), the American Property Casualty Insurance Association (APCIA) and the Independent Insurance Agents & Brokers of America (Big “I”).

Brian Kuhlmann, chief corporate counsel for Shelter Insurance, speaking on behalf of NAMIC and APCIA, described BCCP as a program that “would provide straightforward revenue replacement for businesses and nonprofits of all sizes” using a parametric approach that wouldn’t require claims adjustment. Unlike traditional insurance, which pays for damage if it occurs, parametric insurance automatically pays when specific conditions are met – regardless of damage incurred.

Michelle Melendez McLaughlin, chief underwriting officer for the small commercial and middle market at Chubb, presented a “bifurcated” framework that would treat small businesses differently from mid-size to large corporations.

“Pandemics affect small and large businesses differently,” she said. The Chubb framework would cover small companies for up to three months of payroll and other expenses. Policyholders would be paid a pre-determined amount when the policy is triggered. “This provides policyholders with certainty that they will receive timely financial assistance after an event.”

For businesses with more than 500 employees, the Chubb proposal would create Pan Re – a federal reinsurance facility. “Private insurance companies that choose to sell coverage would write pandemic policies at market terms and retain some portion of the risk. The rest of the risk would be reinsured through Pan Re.”

R.J. Lehmann, senior fellow at the International Center for Law and Economics, agreed with other witnesses that the insurance industry isn’t equipped to handle pandemic risk alone. He went further to question whether insurance is the best structure for addressing this problem.

“Insurance is a system of risk transfer, not a system of economic relief,” Lehmann testified. “Even if private insurers could provide this coverage—on their own or with government support—it is not clear their incentives would align with public health goals or with the aims members of Congress likely have in mind.”

The best argument for a public-private partnership, he said, is that insurers can help policyholders mitigate risks. “But it’s important to ask, ‘Mitigate the risk of what’? The risk you’re trying to reduce is the risk that a business will shut down. But, in a pandemic, you want businesses to shut down. We want them to have a safety net so they can shut down and survive.”

Hartmann counseled legislators to take their time and get the solution right, drawing from all the options that exist.

“Let’s be humble about how little we know, even about the current pandemic,” he said. “Get help to the businesses, workers, and communities who need it now. Don’t legislate for the next pandemic while we’re in the midst of the current one.”

Business Insurance, Insurance Industry, Legal Environment

Trials and Errors: Plaintiffs’ Attorneys Could Complicate Efforts to Help Businesses Hurt by COVID-19

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

It’s been more than eight months since COVID-19 first struck the U.S., and millions of small business owners are still hurting. All the while, a few plaintiffs’ attorneys are treating the pandemic as another opportunity to profit from costly insurance litigation.

At a time when businessowners are looking for leadership to bring much needed financial support, these same attorneys are hoping legislators and judges will help them retroactively rewrite business income (interruption) (BI) insurance contracts. One key figure in this effort is John Houghtaling, a New Orleans-based plaintiffs’ lawyer who was featured in a recent Bloomberg Businessweek profile.

Yet, despite the efforts of Houghtaling and others, courts across the country have to date overwhelmingly affirmed BI insurance policies do not cover losses resulting from the COVID-19 pandemic. And the facts supporting these decisions offer clear and unambiguous evidence indicating BI insurance policies are not designed to cover pandemic-caused business interruptions.

Adds Michael Barry, Head of Media and Public Affairs, at the Insurance Information Institute, “Not one business interruption insurance policy in the U.S. was written on the assumption nearly every business would be interrupted at the same time.” Barry adds, “This is why regulators and judges are consistently siding with insurers who argue direct physical damage to property is needed to trigger a business interruption policy.”

Irrespective of insurers’ and trial attorneys’ competing points of view, the authors of the Bloomberg Businessweek article cite the need for timely and decisive action: “A yearslong legal battle might not be much help to struggling businesses,” the article states. As the end of 2020 approaches, litigation seeking to compel insurers to cover pandemic-related income losses appears likelier to further the lawyers’ interests as opposed to those of businessowners seeking financial support.

Other potential solutions are on the table, most of which are taking shape around the idea that the federal government is the only entity with the reach and financial resources to help businesses recover from an event the magnitude of a global pandemic. On this point, a growing consensus of legal scholars and insurance industry experts concur, with Stefan Holzberger, AM Best chief rating officer, concluding in commentary to a recent report, that “pandemic risk does not afford insurance companies any geographic diversification due to its global nature … Only a governmental program, or perhaps a public-private partnership, could provide the backstop sufficient to compensate for lost revenue to businesses.”

Watch: Can Businesses Win the Fight Over COVID-19 Insurance Claims

As a counterpoint to statements made by Houghtaling and other plaintiffs’ attorneys, Sherman Joyce, President of the American Tort Reform Association presents a competing vision for how American businesses can unite to recover economically from the COVID-19 pandemic: “Americans’ elected representatives — not the trial bar — should have the authority to regulate business within the U.S.” Joyce continues, “The courts must restore that balance of power by rejecting the dreaded return of regulation through litigation.”

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

THE FUTURE OF AMERICAN INSURANCE AND REINSURANCE (FAIR) RELEASES A DIGITAL BUSINESS INTERRUPTION INSURANCE EXPLAINER

POLL: GOVERNMENT SHOULD PROVIDE BUSINESS INTERRUPTION SUPPORT

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

P/C INSURANCE GROUP PUTS PRICE TAG ON CORONAVIRUS

BUSINESS INTERRUPTION CLAIMS RELATED TO COVID-19

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.

Business Insurance, Insurance Industry, Regulation

Assessing Financial Support for Businesses During the Pandemic

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On September 29, the American Action Forum (AAF) hosted an event convening experts to discuss the urgency of government-backed financial relief for businesses whose incomes have suffered under the coronavirus pandemic conditions and what challenges lie ahead.
 
Entitled “Assessing Financial Support for Businesses During the Pandemic,” the discussion was centered on the following key topics:

  • The impact and success of the Paycheck Protection Program and the Federal Reserve’s emergency lending programs, particularly the Main Street Lending Program
  • Pandemic business interruption insurance and the potential for a federal pandemic program
  • Protecting businesses from shouldering excessive costs due to the new field of coronavirus litigation

Among the event participants was Insurance Information Institute (Triple-I) CEO Sean Kevelighan. In a discussion with AAF’s Director of Financial Services Policy Thomas Wade, Kevelighan provided an overview of the business interruption (BI) insurance landscape in the context of the pandemic. Key highlights included:

  • Global pandemics are largely uninsurable. “Compared to other covered catastrophes—hurricanes, wildfires, vandalism from civil unrest—a pandemic is not limited to time or geography. What we’re seeing now with COVID-19 is impacting every community, every economy, and all at the same time. And with this, from an industry that relies on the law of large numbers, you simply can’t price risk in a way that would be efficient.”
     
  • Standard business interruption (BI) insurance necessitates direct physical damage. “Beyond the enormity of a pandemic catastrophe, a virus does not cause direct physical damage, which is nearly always needed to trigger a property insurance policy, particularly for businesses insurance and business interruption insurance policies.”
     
  • The lack of a federal system to provide the critical financial relief businesses has created an opportunity for trial attorneys to capitalize on business owners’ desperation. “Sensing [business owners’] desperation, trial attorneys have unfortunately dusted off their playbooks and seized on the opportunity. They’re selling a false sense of hope to consumers; they’re filling court houses with litigation that is attempting to retroactively rewrite contracts by manipulation of language and interpretations.”
     
  • As insurers work to meet promises for policyholders facing covered events such as wildfires, forcing insurers to retroactively cover pandemic-related losses is detrimental to the insurance industry—a backbone of the economy. “The insurance industry is concerned about these misguided and costly attempts—mainly by trial attorneys—to take capital away that we’ve set aside for claims that are actively being paid right now as we are in the midst of extreme seasons of hurricanes and wildfires. We’ve also seen incidents of rioting and civil unrest. To be clear, our own economic analysis at Triple-I shows that any attempt to retroactively pay business interruption claims would put systemic strain on the insurance industry. Notably, this industry was one of the financial services industries that weathered our previous recession well because of how safely we manage our capital. But in this case, it would only take a matter of months to bankrupt the industry.”

More about this discussion and the broader state-of-play for business relief is available from a companion report released by Thomas Wade. For more information on the ongoing business interruption debate, visit fairinsure.org

A recording of the event can be viewed below.

Business Insurance, Business Risk, Legal Environment

U.K. Ruling’s Impacton U.S. Insurance Cases: Little to None

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The U.K. High Court last week issued a ruling involving business-interruption claims against policies issued by eight insurers. Jason Schupp of the Centers for Better Insurance says the ruling is a “mixed bag” for U.K. insurers and policyholders and has little relevance for their U.S. counterparts.

In the U.K. case, Schupp writes, “the fundamental theme running through the insurers’ defense was that the policies only covered localized outbreaks, not global pandemics.”

“More to the point for U.S. property/casualty insurers,” says Michael Menapace, a professor of insurance law at Quinnipiac University School of Law and a Triple-I non-resident scholar, the U.K. case involved disease coverage – “an affirmative coverage not included in most U.S. commercial property policies.”

 U.S. business interruption disputes so far have turned on two key policy features:

  • U.S. business-interruption coverage almost always requires property damage to trigger a payout.
  • Nearly all U.S. COVID-19-related court cases have involved policies that specifically exclude viruses.

“The U.K. court did not address either the question of property damage or the applicability of a virus exclusion,” Schupp writes.

As Menapace put it in a recent blog post about U.S. business-interruption cases, “Policy language controls whether COVID-19 interruptions are covered…. The threshold issue [for U.S. insurers] will be whether the insureds can prove their business losses are caused by ‘physical damage to property’.”