COVID-19: Real Solutions Emerge by Staying Clear of the Retroactive Coverage Rabbit Hole
First published March 28, 2020
Even though most policies provide little if any coverage for COVID-19 business income losses, insurers can contribute robust claims administration capabilities during the current crisis.
For more than a decade, nearly all commercial property insurance policies have contained specific exclusions barring coverage for viral pandemic. Look at a typical businessowners policy and you will find within the first few pages a list of endorsements including one entitled something like “EXCLUSION OF LOSS DUE TO VIRUS OR BACTERIA.” It was never a secret the insurance industry had stepped out on covering catastrophes like COVID-19.
Insurers clearly and openly excused themselves from pandemic coverage and we collectively accepted that decision. Stakeholders had many years — including four renewals of the Terrorism Risk Insurance Act of 2002 (TRIA) — to figure out whether and to what extent insurers should be pressed into financing the recovery of small businesses, nonprofits and local governments from the economic ravages of epidemics and pandemics. We never did.
In a nation of laws and for an industry whose product is a promise, there is no going back by either side to rewrite a deal entered fairly and transparently. An insurance contract is not a Mad Libs book where we are free to fill in the blanks after a loss with the coverages we wish we had. Obviously, in the coming months we will have a conversation about the role of the insurance industry in pandemics going forward and that arrangement will no doubt look very different than the one today.
Proposals of retroactive COVID-19 coverage have distracted from the more meaningful discussion of what insurers actually can bring to the table now. Property insurers maintain sophisticated operations, highly trained staff and extensive vendor networks with capabilities to deliver financial benefits (including payroll continuation), assist businesses in minimizing income loss and prevent and detect claim fraud even during extreme catastrophic events.
Insurers routinely deploy their catastrophe claims teams for a range of disasters such as hurricanes, floods and wildfires. Over the 17 years during which TRIA has been in place, insurers significantly reinforced these capabilities so they can now respond to a nationwide disaster from multiple terrorist attacks up to more than twice the scale of September 11. Further, insurers have built processes and systems to interact with US Treasury on claims submission, documentation and payment to efficiently get recovery money into the hands of impacted businesses.
It is simply not right and, ultimately, it will not work to drop the bill for COVID-19 off on the doorstep of the insurance industry. However, the insurance industry can and should offer its world class catastrophe claims administration capabilities to help speed and control the flow of state and federal financial assistance to US businesses.
The proposed COVID-19 Small Business Insurance Program is a framework for what could be a constructive and practical dialogue among insurers, policymakers and other stakeholders.
