COVID-19: Forcing insurers to pay uncovered losses could jeopardise stability, says APCIA

The American Property Casualty Insurance Association (APCIA) has estimated that business continuity losses for small businesses due to the coronavirus (COVID-19) pandemic could reach up to $383 billion a month, compared to a total surplus of only $800 billion.

The national trade association for home, auto, and business insurers in the US stated that although it supports the federal assistance programmes to aid vulnerable and affected small businesses, it believes that forcing insurers to pay for uncovered losses could threaten the stability of the sector.

David Sampson, president and CEO of APCIA, said: “Many commercial insurance policies, including those that include business interruption coverage, do not include coverage for communicable diseases or viruses such as COVID-19. There are some who are calling for actions that would retroactively rewrite existing insurance policies to add new risks to the promises that were made to insurance customers. These types of proposals could have dramatic repercussions for families, individuals, motorists and businesses, potentially compromising the financial ability of insurers to meet their existing promises."

He noted that “if policymakers force insurers to pay for losses that are not covered under existing insurance policies, the stability of the sector could be impacted and that could affect the ability of consumers to address everyday risks that are covered by the property casualty industry."

“Any action to fundamentally alter business interruption provisions specifically, or property insurance generally, to retroactively mandate insurance coverage for viruses by voiding those exclusions, would immediately subject insurers to claim payment liability that threatens solvency and the ability to make good on the actual promises made in existing insurance policies."

APCIA highlighted that P&C insurers are already working in a number of ways to help the affected customers during the crisis, while some are implementing new measures to directly help policyholders, others are adopting new technologies and remote solutions to minimize any interruptions in service. At the same time, insurers are also protecting the safety of their employees by transitioning to remote workplaces and implementing a travel ban.

“Insurers are working with Congress and the Administration on a national solution for managing pandemic risk to support an efficient and well-functioning economy. 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. We also are working with all insurance trades and trades from the broader business community on alternative approaches to address the liquidity needs of American businesses and employees during this time of an unprecedented shut down of the economy," the association said.

According to the association's preliminary estimate, business continuity losses just for small businesses with 100 or fewer employees could fall between $220-383 billion per month, while the total surplus for all of the US home, auto, and business insurers combined to pay all future losses is roughly only $800 billion, with the combined capital of the top business insurance underwriters representing only a fraction of that amount.

Sampson pointed out that “for perspective, our industry responded to more than three million claims, the most ever handled by the property casualty industry due to catastrophes during the 2005 hurricane season that included Hurricanes Katrina, Rita, Wilma, and several others. While a significant number, it dwarfs in comparison to the potential for 30 million or more claims from each of the small businesses operating in the United States today."

“Insurance stability is especially important in a time of increased natural catastrophes. Spring flood season is underway, hurricane season is around the corner, and wildfires pose a threat year-round," he explained.

Sampson concluded: “We will continue to work with the Administration, Congress, governors, state legislatures, 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."