Like many industries, COVID-19 will change how insurance policies are written.
Communicable disease/viruses like the COVID-19 are typically excluded in most insurance policies, so we believe the SBA PPP loan forgiveness program is currently the best path forward to recovery for many small businesses. Unfortunately, the PPP loan is not adequately structured for educational institutions, hospitality and retail industries to fully recover, so many of these business may not be able to recover and reopen. There is a lot of movement with litigation and legislation State by State to force insurance carriers to pay business interruption claims. Passing legislation Bills at the State level would be a good solution if the government provides funding for the insurance carriers to administer and payout COVID-19 business interruption claims. Without proper funding through the CARES Act, forcing carriers to pay business interruption claims could cause a major insolvency event for many insurance carriers. In addition, underwriting and actuary data would become unreliable and the whole insurance and financial infrastructure would be in jeopardy causing long-term damage if States force insurance carriers to pay an uncovered loss without providing adequate funding.
If legislation passes without adequate funding in any State and is signed by a Governor, the insurance carriers will most likely immediately fight the Bill through litigation. As a result, I believe the only chance of success through a Bill is if the government truly funds the insurance carriers “in real time” to pay for COVID-19 business interruption losses. It makes good sense for the government to utilize the insurance carrier infrastructure to administer funds with their claims adjustors.
To help increase everyone’s confidence that our country and insurance carriers will be better prepared to protect us from pandemics going forward, we believe the Federal government and insurance carriers will collaborate to develop a solution similar to the Terrorism Risk Insurance Act (TRIA) and National Flood Insurance Program (NFIP) with involvement from the Federal Emergency Management Agency (FEMA) and Centers for Disease Control (CDC). The Federal government will most likely roll out a new program called PRIA “Pandemic Risk Insurance Act” or pandemic losses may become part of TRIA. Under PRIA or TRIA, the insurance carriers would retain an underlying layer of pandemic risk for businesses, act as the program administrator, collect premiums and manage the claims on behalf of the Federal government. The long-term exposure of business interruption from a pandemic/epidemic event should be funded in one of the last phases of the CARES Act.