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Forced COVID-19 payments could impact insurer stability: Sampson, APCIA

23rd March 2020 - Author: Luke Gallin

David Sampson, President and Chief Executive Officer (CEO) of the American Property Casualty Insurance Association (APCIA), has said that the industry recognises the unprecedented disruption being caused by the COVID-19 outbreak, but has warned against impacting the stability of the insurance sector in the U.S. through forced covers.

coronavirusAccording to Sampson, insurers in the U.S. are focused on solutions and assisting those impacted by the ongoing global coronavirus outbreak.

As is the case in much of the world right now, significant disruption caused by the outbreak is having a damaging impact on businesses of all shapes and sizes from across numerous industries.

The night life of many cities around the world has been halted as governments close venues and ban social events and gatherings in an effort to control the spread of the virus, which continues to infect more people and claim more lives on a daily basis.

During such times, many individuals and businesses will be looking to their insurer for assistance and financial protection, and Sampson, in a recent statement, underlined the essential role the insurance sector plays in the U.S.

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“The property casualty industry is an essential stabilizing force in America.  We have always been a part of solving some of the greatest challenges facing America, especially during times of major catastrophes.

“Insurers are for a national solution on managing pandemic risk to support an efficient and well-functioning economy.  Managing these risks will be critical to supporting jobs and businesses, and our country’s supply chain, as we rise from the crisis.  America has options and insurers will help propose solutions,” he said.

He continued to add that the APCIA remains committed to its customers during this time and highlighted some measures being taken by insurers in the region in an effort to help insureds through uncertain times.

This includes things like the implementation of contingency and continuity plans for pandemics to protect employees and mitigate any impact to services, while others are implementing flexible payment solutions for customers, which ensures they remain protected during times of financial stress.

“Insurers recognize that American businesses are facing unprecedented disruption. Many standard event cancellation, business interruption, and travel insurance policies do not include coverage for communicable diseases such as COVID-19. Although, some businesses have purchased broader protections through specialized coverage.

“APCIA supports the federal assistance programs that the Administration and Congress are proposing to deliver aid directly to vulnerable business communities, particularly affected small businesses.

“However, if policymakers force insurers to pay for losses that are not covered under existing insurance policies, the stability of the sector could be impacted,” continued Sampson.

His comments are in response to a recent piece of legislation that failed to be passed into law in the State of New Jersey, which, if enacted, would have forced insurers of certain businesses to provide business interruption protection regardless of virus outbreaks being excluded.

The Bill was actually held by the New Jersey Assembly with opposition citing the potential for this to result in higher premiums, and analysts have since suggested it’s unlikely such a rule would come into force as it would be resisted in the courts strongly by insurers.

For Sampson, forcing insurers to pay for excluded covers would negatively hit the stability of the sector in the U.S., which is especially vital in times of natural catastrophes.

“Spring flood season is underway, hurricane season is around the corner, and wildfires pose a threat year-round.

“We stand ready to work with the President, Congress, and state insurance regulators to ensure our nation recovers from this crisis, and to provide effective relief to those most vulnerable, as well as forward-looking answers that speed economic recovery from future pandemics.”

The potential for significant business interruption losses has been a hot topic within the risk transfer space following the outbreak of the coronavirus.

It appears that the majority of businesses simply won’t have business interruption protection as most policies specifically exclude cover for infectious disease outbreaks and utilise a physical damage trigger. And, while some firms might well have purchased additional cover that extends to such an event, overall, business interruption losses are expected to be limited for the industry from COVID-19.  

Of course, only time will tell exactly what the financial impact is but costs could start rising if more and more global events continue to be cancelled. For example, Swiss Re’s CFO John Dacey said recently that the reinsurer has a $250 million exposure to the cancellation of the 2020 Tokyo Olympics, which, is looking increasingly likely as more countries call for action.

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