As businesses across the country are devastated by the shutdowns and restrictions imposed by the coronavirus pandemic, a number of state governments and members of Congress are trying to get insurance companies to cover related losses.
The industry is resisting, saying that the pandemic is not an event covered under existing policies and that coronavirus-related claims would bankrupt the insurance industry if paid out.
In at least four states — New York, New Jersey, Ohio, and Massachusetts — lawmakers have proposed legislation to force insurers to pay potentially billions of dollars for business losses related to the coronavirus economic shutdown. In addition, a bipartisan group of 18 politicians in Congress asked insurers in a letter on March 18 to recognize financial losses relating to the coronavirus retroactively under their commercial business interruption coverage for policyholders.
“We urge you to work with your member companies and brokers to recognize financial loss due to COVID-19 as part of policyholders’ business interruption coverage,” the letter states.
The insurance industry has condemned the claims and has insisted that their insurance contracts don’t include pandemic coverage and said that retroactively changing them would be an existential threat.
“It would be like a category 3 hurricane in every major city occurring at the same time, or a wildfire burning all across America, and we had to cover that. You just can’t underwrite risk like that, it’s not affordable,” said Sean Kevelighan, CEO of the Insurance Information Institute, an association that represents the industry.
The industry is pushing back against the notion that it’s shirking its responsibility. It claims that it never took on the risk for the pandemic and that if insurance companies were forced to pay for uncovered coronavirus-related business losses, they would be unable to pay for losses from disasters, such as tornadoes, hurricanes, and wildfires that are covered.
The U.S. property-casualty insurers have approximately $800 billion in surpluses to cover customers who have bought insurance from them, according to the Insurance Information Institute.
The American Property Casualty Insurance Association has estimated that business losses just for small businesses with 100 or fewer employees from the coronavirus shutdown would be many hundreds of billions of dollars a month. The association says that this would mean that the $800 billion reserves that are kept for all future losses would be insufficient for helping businesses and corporations through the economic struggles of the pandemic.
David Sampson, president and CEO of APCIA, said that the industry, for example, responded to more than 3 million claims, the most ever handled by the industry, due to catastrophes during the 2005 hurricane season that included Hurricane Katrina and several others.
“While a significant number, it dwarfs in comparison to the potential for 30 million or more claims from each of the small businesses operating in the United States today,” Sampson said.
“The public impression that insurance companies have a pot of money that we should be handing out is simply money that we don’t have,” said an insurance industry executive. “There’s a lot of industry concern and activity related to this misconception.”
The industry seems confident that the law is on their side, though, and that it would be illegal and unconstitutional to change insurance contracts to force payouts retroactively.
Jimi Grande, senior vice president at the National Association of Mutual Insurance Companies, a major industry association, said, “God bless their creativity,” to those trying to sue insurance companies, but he was confident they wouldn’t succeed.
“When you have challenging times, you have high emotions, and we understand that, but we want the right solutions, for now and the future,” said Kevelighan.
Only approximately 35% of all businesses have business interruption coverage, which insures them for a number of circumstances that could cause their business to come to a stop, but pandemics aren’t typically included within those circumstances. Multiple insurance associations said that very few, if any, businesses are covered for a pandemic itself.
“Pandemics are not covered because it’s an uninsurable event. The losses would be the entire balance sheet of an entire industry,” said Grande.
This is why most insurance companies don’t even offer insurance for pandemics, Grande added.
The insurance industry says that there were similar claims made against the industry after the SARS epidemic of 2003 and after the 9/11 terrorist attack.
“We tried after SARS to create insurance for such diseases, but it doesn’t work. It can’t be purchased,” said Kevelighan.
Kevelighan explained that it would be prohibitively expensive for most businesses to pay for pandemic insurance on a month-to-month basis in order to raise the trillions of dollars necessary for insurance companies to provide coverage. He said that, just like after 9/11 and the SARS outbreak, it is the government’s responsibility to assist businesses and people, since only the government has the necessary resources and tools to do so.
Kevelighan noted that all terrorism insurance coverage, for example, is supported and backed up by the federal government. For insured losses of more than $200 million due to a terrorist attack on the country, the government steps in and shares the burden of assisting businesses with the insurance industry.
The insurance industry says that it nevertheless is trying to help businesses by providing discounted insurance coverage during the crisis and waiving late fees. It is also providing additional worker compensation coverage for affected workers such as those in healthcare, first responders, and those in delivery services.
“We consider ourselves economic first responders, we want people to understand how our industry operates, that we keep our promises on policies that we cover, on catastrophes to come,” said Kevelighan.
