Insurance Jottings
RIMS acknowledges drawbacks in forcing insurers to retroactively cover BI
The chairman of RIMS’s external affairs committee has said the society recognises the challenges which would result from retroactively forcing insurers to cover business interruption losses, despite it sounding good for insureds in theory.
UK Regulator Wants Courts to Clarify Wording of Disputed Business Interruption Policies
Britain’s financial watchdog said on the 1st May it would urgently ask the courts to clarify uncertainty over whether businesses can claim compensation for disruption caused by the coronavirus pandemic.
The Financial Conduct Authority (FCA) also told all insurers to assess whether they should be giving partial policy refunds during the pandemic.
A national lockdown to fight the pandemic has forced many companies in the UK to temporarily suspend operations and furlough staff.
“We have been clear that we believe in the majority of cases business interruption insurance was not purchased to, and is unlikely to, cover the current emergency,” FCA interim chief executive Christopher Woolard said in a statement.
“However, there remain a number of policies where it is clear that the firm has an obligation to pay out.”
The FCA said it had written to “a small number of firms” to ask if they were declining business interruption claims. It said it would seek a response by the 15th May and then “consider which firms to ask to join the court process.”
However, the FCA said the court action – which industry officials said was a first in insurance by the regulator and could save years of costly legal battles – would not determine how much could be payable under individual policies.
Lloyd’s insurer Hiscox is among firms who have come under pressure from small businesses to pay out for business interruption, along with, AXA, QBE and Zurich.
QBE said it had received a letter from the FCA on the 1st May. AXA said it would work closely with the FCA, while Zurich said the FCA move would provide clarity for customers. Hiscox and RSA did not respond to requests for comment.
Willis Towers Watson estimates UK insured losses for business interruption, together with event cancellation, could total up to US$14 billion in relation to the pandemic, depending on policy wordings.
Business interruption policies can be worded in 100 or more different ways, industry sources say.
The Association of British Insurers (ABI) said it would “support any process which will provide clarity and certainty for the minority of customers who are disputing whether they should be covered.”
The ABI said most policies did not cover pandemics and noted that the UK government had confirmed it would not seek to retrospectively change contracts.
Eight US states have introduced legislation which would require insurers to pay claims, mainly to small businesses, despite exclusions.
Mel Stride, chair of the UK parliament’s Treasury Committee, welcomed the FCA’s move and urged insurers to pay businesses which should be paid, or risk damaging the sector’s reputation.
Alistair Handyside, executive chairman of The Professional Association of Self-Caterers, said many members believed they were covered and he would be sending a report to the FCA.
Premium Refunds
In guidance that will come into effect in mid-May, the FCA suggested insurers could help struggling customers with premium payment holidays or the waiving of administration, cancellation and missed payment charges.
Insurers will also have six months to check whether their products still deliver the benefits promised, the FCA said.
For example, it said boiler cover insurers may not be able to offer the annual service included in many policies, while liability insurance may not currently be relevant to businesses such as hairdressers, bars and restaurants that are closed.
Insurers could refund some premiums or suspend monthly payments for a certain period of time, the FCA said.
Motor insurer Admiral had earlier said it would refund £110 million to customers, following rebates made by top US motor insurers.
Allianz-owned LV= said on the 1st May it would refund £30 million (US$38 million) to car and motorbike insurance customers in financial difficulties.
Hastings said it had made price reductions and was considering more, while Direct Line said it was being flexible with customers, including offering payment holidays for those in financial difficulties.
Insurers Promote Federal Pandemic Insurance Plan to Congress
The US insurance industry is promoting the idea of an insurance plan backed by the federal government which would help businesses that in the future suffer losses from a pandemic, people familiar with the effort told Reuters.
The campaign involves discussions with lawmakers and regulators, public statements and coordination with a broad coalition of non-insurance companies including retailers, hoteliers and booksellers, sources said.
Insurers are doing this after facing multiple lawsuits, fierce political pressure and criticism from customers with business interruption policies over not covering their recent financial hardships due to the novel coronavirus pandemic.
About 40% of small businesses have business interruption coverage, according to the Insurance Information Institute, an industry trade group.
While these policies may cover revenue losses from hurricane damage, lightning strikes or cars crashing into buildings, they either exclude or do not specifically cover a global pandemic, however much it may interrupt business.
US insurers say they would not have the financial means to help every insured business affected by coronavirus, even if required to.
“The industry doesn’t have as much money available for new claims as people would tend to think,” said Steven Weisbart, chief economist for the Insurance Information Institute.
Insurers have a lot more money for potential claims than regulators require, but they need the funds for other types of claims, such as hurricanes and wildfires, he said. Eight US states have introduced legislation that would require insurers to pay claims, mainly to small businesses, despite exclusions, efforts that could more than deplete the industry surplus if enacted.
The US industry has about US$750 billion to US$800 billion in gross surplus, compared with the US$400 billion required by regulators, he said. The industry spent US$622 billion last year on claims and related expenses, Mr Weisbart said.
“If we ever had a bad hurricane season or bad anything else, we wouldn’t have enough money,” he said.
Insurers want the pandemic policies to be backed by the US government, similar the government-supported commercial terrorism products after the attacks of Sept. 11, 2001.
Chubb Ltd Chief Executive Officer Evan Greenberg called for that kind of public-private partnership on the 22nd April. John Doyle, chief executive of insurance broker Marsh LLC, a Marsh & McLennan Companies unit, also offered “assistance” in crafting such an idea in a letter to US Treasury Secretary Steven Mnuchin and White House economic adviser Larry Kudlow on the 30th March.
Two non-insurance trade groups also sent pleas for such a policy to US lawmakers and officials on the 20th April: RIMS, which represents risk managers at major businesses and the National Retail Federation, which partnered with 16 other business groups.
The idea has gotten some uptake in Washington.
Lawmakers including Democrats Carolyn Maloney and Lacy Clay, senior members of the House Financial Services Committee, are circulating draft bills for creating a government-backed pandemic insurance policy, suggesting it would help small businesses, while Republican Representative Brian Fitzpatrick has introduced a similar measure.
A group of state lawmakers also held a joint webinar with industry representatives earlier this month, in part to talk about the need for a government-backed pandemic product.
There is scant chance that any new insurance policy will help business owners whose revenue has already been hit.
Proposals in Congress would require time and studies before being put in place, experts and lawyers said.
In the meantime, one product which does exist, pandemic business-interruption insurance launched by Marsh in 2018, is not writing coverage for coronavirus. The policy did not initially sell well although demand has since spiked, said Christian Ryan, the company’s hospitality, sports and gaming practice leader.
“The industry has a finite balance sheet which can’t take infinite risk,” Chubb’s Greenberg has said.