It may feel like the end of the pandemic is in sight, but for the insurance industry the shock waves created by 2020 will be reverberating for years. From premiums to policy language, and from underwriting to governmental action, changes are coming in 2021.
In addition to the obvious influence of the pandemic, 2020 was also a monumental year in terms of insurance losses. It is easy to forget the historic hurricane season with its 30 named storms, the hellscape of wildfires that ripped through much of the West, the tornados and derecho that ripped through the Midwest and the civil unrest that caused huge losses for businesses in city centers throughout the nation.
All of that loss will likely add up to higher premiums.
Even still, the elephant in the room was COVID-19. While much of the industry already had policy language excluding communicable diseases, pandemic exclusions are a certainty in nearly every new policy. And even without pandemics, underwriters will likely be taking closer looks at nearly every risk for a while.
But, just as risk isn’t going away, neither is insurance. Here are a few specific ways the industry is likely to change in the next 12 months.
Perhaps the biggest disappointment for business owners during the pandemic was realizing that business interruption insurance policies excluded pandemics. But that didn’t stop them from suing.
Barring legislative mandates or judicial intervention, pandemic exclusions won’t be changing any time soon.
Instead, business owners are turning to practical ways to limit their liability while reopening as safely as possible. Still, liability is a concern.
Some states have issued liability waivers for businesses that follow safety best practices, but no federal protections have yet come down. Absent that, businesses are going to have to rely on their business owners’ policies if an employee or a customer claims they caught the virus in their place of business.
Liability may also bleed over into workers' compensation.
One place the federal government has stepped in is unemployment insurance. While the federal supplement has softened the blow for employees, the open question that isn’t being widely discussed is the fate of state unemployment trust funds.
State-based unemployment insurance was never designed for an event of this scale, and many state funds are nearly empty. It will be interesting to see if federal money will top off those funds or if state statutes will kick in, passing the responsibility on to employers in the form of higher taxes.
The two traditional components of travel insurance were trip cancellation and supplementary health.
The health component was essential in overseas trips where a U.S.-based policy may not carry over. But with overseas travel all but shut down, that element also largely fizzled.
The cancellation portion is continuing for now, with a huge caveat. Pandemics in general, and COVID-19 in particular, will not be covered.
As overseas travel begins to open up later in the year, the health portion may return, but, because COVID-19 is a known event, chances of finding a policy willing to cover its risk are slim to none.
See also: 2020 Catastrophes; Preview for 2021
Event cancellation and contingency
Like trip cancellation, event cancellation policies can also be found, but they, too, are all but certain to exclude COVID-19, much less any communicable disease. The policies that are available now tend to only cover small-scale events.
Before any event will be covered, though, it has to be held in a locality where that event is allowed and legal. Presuming it is allowed, the next step is going to be increased scrutiny by underwriters, who most likely won’t sign off on any event unless it’s incredibly aboveboard.
Underwriters will be looking at event size as well as logistics. An outdoor concert will be more likely to get a policy than an indoor electronic dance music show.
Cameras are rolling again, and, in many cases, producers have secured insurance policies protecting their productions. That said, many of those policies are requiring massive self-insured components and monstrous deductibles.
Even with the tighter pandemic protocols, some of those productions have still suffered COVID-19 outbreaks, in many cases causing the productions to shut back down.
For the time being, the entertainment industry will likely continue that stuttered start-stop pattern, but the profit motive of new content will make that struggle worth it.
COVID-19 has thrown a wrench in the normal operations of health and life insurance policies.
In terms of health insurance, paying for pandemic costs is the least of the worries. The bigger issue is that patients have foregone normal preventative care. That is reverberating in three major ways.
First, because premiums are set according to prior-year payouts, setting rates for 2021 was challenging. Second, insurers are worried that the backlog of procedures will come flooding into the system in 2021, prompting corresponding payouts. Finally, with people not taking care of chronic conditions, industry watchers worry that health will worsen in the long run.
In terms of life insurance, the biggest question is the paramedical exams. While many of the hard lockdowns have been lifted, people are still reluctant to invite nurses into their homes to get the data needed for proper underwriting.
Some companies have responded by offering no-exam policies, but how that will play out is the biggest question mark.
See also: 11 Keys to Predictive Analytics in 2021
The biggest intermediate impact is going to be defined by Washington and the courts.
The courts are going to have to weigh in on whether business interruption policies and event cancellation policies will be forced to pay out despite contractual pandemic exclusions.
Lawmakers may also step in with a liability shield for businesses.
But the biggest issue industry insiders are watching is a potential federally backed pooled risk system for pandemics similar to the Terrorism Risk Insurance Act. Without that kind of intervention, pandemics won’t likely ever be covered. There are a few pending bills that might do just that.