IMPORTANT: Please scroll down to the Comment section. Rather than trying to constantly update this article, I will be adding additional information as I come across it. Almost immediately, I came across regulatory action being considered in Colorado and a statement from Progressive that they were not going to enforce their food delivery exclusion for the next month or so.
Two days ago, I posted this analysis of a lawsuit filed in New Orleans seeking a declaratory judgment that business income insurance covers losses arising from government-mandated business shutdowns or curtailments:
“Business Income Insurance…Does It Cover Coronavirus Shutdowns?”
Business Income Insurance…Does It Cover Coronavirus Shutdowns?
I received the following comment on LinkedIn:
“A great read Bill. Thank you! I wouldn’t presume to say I agree with the analysis (the student still has much to learn from the master), but it is obvious to me that this seems like yet another case of ‘we don’t care what the contract says, somebody has to pay!’
“Understanding that yours is a coverage analysis and not public policy commentary, I do think the insurance industry needs to do more than simply say, ‘It’s not covered.’ Based on what some folks from congress have written and our association responses, I believe we are falling short.
“There must be logistical tools that insurance carriers have at their disposal or investment platforms, something that allows us to be part of a solution and not just the brick capped off with a sentiment like, ‘We stand behind our clients….’.”
This was my response (edited and updated):
I’m not sure there’s much the industry can do for the pandemic other than explain why it’s not covered. It’s a catastrophic exposure. We’re talking trillions in costs of all kinds.
There is the potential here to bankrupt many insurance companies and, when that happens. there won’t be enough in reserves and guaranty fund assessments to pay for losses for which policyholders did pay premiums to cover.
Pandemics are a societal and governmental problem, not a business solution problem. It’s an issue that requires risk management techniques other than insurance to address the exposures.
But there are things insurers can do that won’t bankrupt them. For example, you usually can’t reduce coverage mid-term in an insurance contract but you probably can improve coverage without imperiling financial stability.
To illustrate, many restaurants are closing their dining rooms and either allowing regulated carry-outs or making deliveries. In some cases, servers are now being compensated for driving their autos to make these deliveries rather than serving food in-house. Otherwise, they’d be out of work.
So, how about GEICO and Progressive and Liberty Mutual and other carriers that sell personal auto insurance investing the BILLIONS they spend on inane TV commercials into adding 6-month endorsements to personal auto policies that cover food delivery in the event that their policies would otherwise exclude such delivery?
How about commercial auto insurers adding broadening endorsements like the ISO CA 99 33 – Employees As Insureds on their business auto policies, at least for certain industries? This may adversely impact loss experience, but not significantly much less to the point of insolvency.
I believe insurers can do things like this to help and such actions would benefit them, their policyholders, and the country far more than running a bunch of silly commercials.
This is just one idea. I’m sure our industry brain trust can come up with all kinds of suggestions to help consumers and businesses while educating them and making them understand why this is such a great and indispensable industry.
So, what do you think? Add your bright ideas below.
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Bill, I agree with you that the insurance industry must become part of the solution. I like your ideas, especially about insurers allowing a reduction of exposure endorsement mid-term, in turn reducing premiums. What if ISO crafted a COVID19 lay-up sort of endorsement? This would continue coverage either on a reduced exposure basis or no exposure basis for those businesses completely shut down. And, the lay-up endorsement would allow premium reduction or even delayed premium payment until the COVID19 reaches a level that it is no longer classified as a Pandemic.
Interesting, I really hadn’t thought about it from the standpoint of providing premium relief. I was thinking more of broadening coverage to reflect the fact of changing exposures like the server to driver issue discussed in the article.
There are a few things that can be done within policy terms and logically. WC employers can always increase estimates midterm and GL too. Decreases are allowed as well although generally underwriters need to approve. There is no reason that a company (my companies) would not decrease payroll 20-30% with corresponding r/p upon request. Our agency is in the process of doing this. Obviously this would not lower property premiums or even auto premiums. If we are successful we will lose agency income now but that is not important.
This could result in no future installment or actual cash refunds. Of course there are many employers that still pay cash to employees or who under report. We can’t do anything about that. Our “work at home staff” plus the in office warriors are being charged with looking at every one of our commercial accounts to suggest ways to decrease their premiums, hopefully to allow them to pay staff and/or keep them in business. It is the Trusted thing to do. At our agency we have been doing it for 5 generations and 139 years. Hopefully there will be a payoff after this crisis is just a memory. We will see.
Good point about WC.
What the state of Colorado is considering:
What Progressive is doing (Flo must read my blog?):
The magnitude of this event is WAY beyond what insurance companies could process. I did some quick math, and if you LIQUIDATED every single insurance company, you MIGHT be able to make a down payment on it, but there is just NO WAY insurance companies can pick this up.
That would be an interesting article for anyone that has AM Best executive data on assets and liabilities of insurance companies. I wonder how much that amounts to for the writers of business income coverage. I don’t think you’d even have to confiscate it all to tip the insolvency balance.
Other insurers voluntarily expanding coverage for delivery, etc.