In recent weeks, COVID-19 has impacted nearly every segment of life in the US and throughout the world. Many states have issued shelter in place orders, requiring nearly all workers to work remotely or to stop working altogether as businesses’ physical locations are forced to close. The need to slow the spread of the new virus has imposed new rules about maintaining a physical distance from one another, disrupting both business and personal lives. This includes the insurance industry.
There is much we still don’t know about COVID-19 and its ultimate impacts on local, national and global business, and many businesses aren’t sure where to turn for help. P&C carriers have an increased responsibility to help customers and also to mitigate the damage COVID-19 does to their own business.
Increased Business Claims
A crisis often prompts a call from a customer to their insurance company, and the coronavirus is no different. Many businesses are responding to the impacts of COVID-19 on their own work by turning to their insurance carriers.
Since COVID-19 is an unusual circumstance, however, many insurance policies may not directly address pandemics or may require interpretation in order to justify whether a particular passage provides coverage for COVID-19-related business losses.
For example, claims under a customer’s business interruption coverage might turn on whether COVID-19 contamination can be considered physical damage, write lawyers Brian L. Zagon and Michael D. Goodstein, partners at Van Ness Feldman. They refer to one pending legal case in which the question “Is COVID-19 contamination physical damage?” is under dispute.
“Business interruption generally commences at the time an order is given to close a location by a qualified agency and ends when the order is lifted, when cleanup activities are complete, or once a maximum number of days, as stipulated in the policy, is reached,” explains Blake Berscheid, assistant vice president and senior property claims director at Hays Companies.
Not all commercial business interruption policies have space for interpretation. After the SARS epidemic, for example, many policies were updated to specifically exclude coverage for bacterial or viral infections, says David F. Klein, partner at Pillsbury Law. Here, however, wording will be essential: COVID-19 is a virus and not a bacteria, therefore exclusions that only mention bacteria will not apply.
New state or federal laws passed to address COVID-19 may affect coverage as well, even if an exclusion specifically names viral infections. Some states are getting ahead of the business interruption coverage dispute by mandating that insurers in the state respond in a particular way to such claims. For instance, if passed, a bill introduced in the New Jersey Assembly on March 16, 2020 would require insurers to treat COVID-19 contamination as a covered claim.
The number of construction insurance claims is expected to increase due to COVID-19 work slowdowns as well.
“As workers become infected, sick and quarantined, labor shortages could very well arise. This may delay and otherwise affect ongoing construction projects,” says Michael Keester, a partner at the law firm Hall Estill.
Construction contracts typically include clauses that cover time for completion of the project; for many, time is of the essence. As COVID-19-related shutdowns, shelter in place orders and infections affect the availability of workers and the timeliness of construction projects, they will also give rise to disputes over these timeliness provisions, says Keester.
Doing Business Under COVID-19
For insurers, responding to claims or coverage questions is just one aspect of dealing with the coronavirus. Insurers must also consider their own role as employers.
Changing Insurance Work Patterns
As of March 24, 2020, sixteen states, nine counties and three cities in four additional states nationwide have issued stay at home or shelter in place orders.
These orders affect approximately 158 million US residents, write Sarah Mervosh and Denise Lu in the New York Times. While the particulars vary, the bottom line is the same: Don’t leave the house unless you absolutely must.
Many orders also require businesses to restrict staff to those who are required to keep the business running or to facilitate the ability of other staff to work from home. Many insurance companies are required to follow this rule. Consequently, “emphasis on efforts to contain the spread of COVID-19 may mean enabling insurance company staff—from actuaries to underwriters to claims managers—to work offsite, most likely from home,” says Gary Shaw, vice chairman and U.S. insurance leader at Deloitte.
Attention to cybersecurity issues and information access can help ensure that remote staff have secure, reliable access to the information they need to complete essential tasks. Shaw recommends providing each insurance employee with access to a laptop or desktop computer, a virtual private network to secure critical applications and data, audio and video collaboration tools, and “an adequately equipped and staffed IT support team” to support remote workers.
In order to ameliorate the economic effects of work shortages due to COVID-19-related shutdowns, some states are ordering insurers to implement a grace period for the payment of premiums. California provides an example: On March 18, 2020, California Insurance Commissioner Ricardo Lara requested all insurers to provide a minimum grace period of 60 days for premium payments.
“Now is the time to come together to help consumers weather this unprecedented period of uncertainty, and that includes helping policyholders maintain their insurance coverage if they are unable to pay their premiums,” said Lara in a press release.
Insurance premiums are one of the many types of ordinary household payments under consideration for forbearance or suspension, along with mortgages, student loans and credit cards. While few such suspensions have the force of law to date, it seems likely that U.S. consumers will need assistance as long as COVID-19 infection risks require the majority of the population to stay home.
Top Considerations for Insurers
As employers and as experts on risk, property and casualty, insurers play a crucial role in COVID-19 response and recovery. While much remains unknown, insurers can take steps now to handle today’s business and tomorrow’s needs effectively.
Communicate Early and Often
Clarifying customers’ coverage options before claims are filed can help P&C insurers manage claims and claim disputes in uncertain times.
In some states, such communication is already a requirement: On March 10, 2020, for example, Deputy Superintendent Stephen Doody at the New York Department of Financial Services issued a letter requiring authorized P&C insurers “to provide certain information regarding the commercial property insurance it has written in New York,” including business interruption coverage.
Also, it’s important to let customers know about any changes in the ordinary procedure for contacting their insurer, changing coverage or filing claims. Since many insurance companies now rely heavily on remote workers, these processes may be altered or disrupted. Providing insureds with clear guidance on how to contact their insurance company can help both customers and insurers handle business more smoothly.
Rely on Existing Advantages
Currently, property and casualty insurers are in a strong position to respond to claims related to COVID-19 and to pay those that are covered, say Sean Kevelighan and Michel Leonard, Ph.D. of the Insurance Information Institute.
As of the third quarter of 2019, cumulative policyholders’ surplus was more than $800 billion, eight times what P&C insurers paid on covered natural disaster claims in the U.S. in 2017. Diverse investment portfolios, thorough reinsurance and existing state guaranty funds, provide additional support for insurance companies facing increased claims as a result of the coronavirus, say Kevelighan and Leonard.
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