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January 23, 2021

A ‘Touch and Go’ Moment for the Industry

Summary:

There was a "touch and go" moment for the industry in 2020, in the face of business interruption claims tied to the pandemic.

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Sean Kevelighan, CEO of the Insurance Information Institute, said there was a moment in 2020 that was “touch and go” for the industry, in the face of the pandemic.

He and I were talking in advance of Thursday’s Joint Industry Forum, the III conference that is the first big event of the year and that sets an agenda for the industry (more on the forum in a bit), when he described how close the industry had come to being whacked with potentially hundreds of billions of dollars of business interruption claims. BI claims were obviously a potentially big deal, even though it was clear early on that few policies in the U.S. covered them, and I have seen that the issue faded, but I didn’t realize quite what a close call the industry had.

“The industry collaborated more than I’ve ever seen us do,” Kevelighan said. “Everyone has shown that the industry can come together and lead in a very disruptive time.”

Kevelighan said plaintiffs attorneys saw an opportunity early and won sympathy with state legislators, eager to help their small-business constituents. Some celebrity chefs formed a group to make the case publicly that they would go out of business if insurers didn’t cover their pandemic-related losses. Something called the Business Interruption Group even got businesses in Times Square to shut off their lights for a minute in May to dramatize the threat.

III countered with a campaign that made two main points. First, that the policies didn’t provide business interruption coverage for a pandemic and that rewriting contracts after the fact was unfair. Second, that a pandemic isn’t an insurable event. Yes, the industry had $800 billion in surplus, but covering all the potential BI claims would cost the industry $400 billion a month – so those small businesses could only be covered briefly by insurers, and then the money would be gone. Legislators would then have to face constituents who were hit by hurricanes, wildfires and so on and who had valid claims – but whose insurers couldn’t pay.

III got the word out through hundreds of media interviews, through email blasts to anyone who was in a position of influence and through a website. Kevelighan said the industry more than did its part as good citizens: providing more than $14 billion in rebates just in auto premiums, making $300 million in charitable contributions, paying claims in new and innovative ways and committing to keeping employees on the payroll. He says all parts of the industry are now hiring.

The situation was still touch and go until a hearing before a House subcommittee on May 21. But at the hearing, conducted via WebEx, the main plaintiff attorney didn’t even advance the idea that contracts should be rewritten to make insurers liable. Instead, he suggested that insurers could voluntarily cover business interruption and then, he hoped, be reimbursed by the federal government – an idea that went nowhere.

“Congressmen were very aggressive about defending their constituents – if a hurricane or wildfire hits, there needs to be money there,” Kevelighan said. “We all empathized with the customer. Sure, customers should be scared. But the response to a pandemic has to come from the federal government.”

He added that the quick mobilization in the face of such a threat “shows how nimble the industry can be.”

Building on that experience, Kevelighan said, the first panel at the Joint Industry Forum will comprise CEOs who will discuss other industrywide issues, including what the effects of the new Biden administration will be.

“You’re certainly going to see some things that were started in the last Democratic administration that kind of went by the wayside but that may well resurface,” Kevelighan said.

He cited the Federal Insurance Office and Consumer Financial Protection Bureau as potential examples. He added that “it’s been said that every part of the Biden administration has a climate change piece to it.

Kevelighan said the insurance industry can play a leading role on climate risk – which is the subject of the next panel at the Joint Industry Forum. He cited, for instance, a III project called the Resilience Accelerator, which is trying to drive behavioral change to reduce risks such as those from wildfires and floods.

“Risk never really comes into play in the property-buying process at the moment,” he said. “You go into the beautiful forests in California and decide you want to build there, but nobody talks to you about the wildfire risk. We’re trying to change that.”

He’ll close the brief event with a fireside chat with Richard P. Creedon, chairman and CEO of Utica National Insurance Group, that will, among other things, cover that old favorite: regulatory issues.

I’ve found these events to be very useful in the past and hope you’ll join me at this virtual event, then hope we’ll all see each other at what III expects will be an in-person event in Washington, DC, in June.

Stay safe.

Paul

P.S. Here are the six articles I’d like to highlight from the past week:

20 Issues to Watch in 2021

Presumptions for COVID-19 show how the line between workers’ comp and group health continues to blur.

Crowdsourcing 6 Themes for 2021

Trust in insurance has been dealt a double blow in 2020 — and resolving that must be a priority in 2021.

Despite COVID, Tech Investment Continues

Interest remains high in technologies like artificial intelligence and big data.

Did Biden Just Kill Wellness Programs?

Advisers need to be aware that many if not most clinical wellness programs now expose clients to employee EEOC actions.

What 2020 Taught Us on Selling Insurance

Insurance policies that are sold online need to be packaged and priced differently than those that rely on face-to-face sales.

Home Insurance for Those Needing It Most

Sugar, a startup in South Africa, provides home insurance even for shacks costing a few hundred dollars, and without a street address.

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About the Author

Paul Carroll is the editor-in-chief of Insurance Thought Leadership. He is also co-author of Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 Years and the author of a best-seller on IBM, published in 1993. Carroll spent 17 years at the Wall Street Journal as an editor and reporter; he was nominated twice for the Pulitzer Prize. He later was a finalist for a National Magazine Award.

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