Extreme weather and other climate-related hazards.
And now, zombies.
Swiss Re’s chief economist this week said failures of hundreds of “zombie companies” over the next few years are among the concerns prompting insurers to reduce risk and charge higher premiums – a trend that is likely to continue as corporate failures increase.
Zombies – companies that lack the cash flow to cover the cost of their debt – are “a ticking time bomb” whose effects will be felt as governments and central banks withdraw measures that have helped keep these companies alive during the pandemic, Jerome Haegeli told Reuters.
The sobering prediction comes as stock prices hit records and the U.S. economy appears headed for 6.5 percent growth this year. Haegeli said these strengths are illusory because they’re based on temporary fiscal and monetary support.
Insurers are being cautious: reining in underwriting risk, being more prudent about investment allocations, and even taking precautions on insuring operations and supply-chain risk.
“They are not getting fooled by the short-term picture,” Haegeli said. “If you look at the market today, everything looks great. However, it’s illusionary to think that this environment can last” as “life support” is withdrawn in coming months. And that, he said, will bring an increase in long-overdue bankruptcies.
It’s tempting to presume that, as the pandemic-driven aspects of the economic crisis are brought under control, recovery will proceed apace. After all, the economy was doing fine before the pandemic hit, right?
Before the pandemic, the BIS said, about 20 percent of listed firms in the United States and United Kingdom were zombies and 30 percent in Australia and Canada. By comparison, zombies constituted about 15 percent of listed companies in 14 advanced economies in 2017 and 4 percent before the 2008 financial crisis.
Absent any reason to believe these companies’ situations substantially improved during the pandemic or that the contagion didn’t spawn more zombies, the expectation of more corporate collapses seems reasonable.
By Marielle Rodriguez, Social Media and Brand Design Coordinator, Triple-I
To celebrate Asian American and Pacific Islander (AAPI) Heritage Month, we spoke with Joann Wang, Co-Founder and Director of Operations of East Side Stories (ESS), a NYC-based non-profit organization dedicated to sharing the AAPI experience through film, media, and education. ESS brings together local talent, AAPI creatives and filmmakers, AAPI-owned businesses, and other community organizations to create meaningful storytelling and conversations around the AAPI experience.
We spoke to Wang on what inspired her to found ESS, how her crew prepares for pandemic-related liabilities on a film set, and the dogged resilience and solidarity of AAPI small businesses and their supporting communities.
Let’s talk about your background. What inspired you to found East Side Stories (ESS)?
I’m Taiwanese-Mongolian, and I’m a full-time school counselor and a part-time vocational counselor. Shane, our freelance filmmaker, and I started ESS as a passion project. We started doing our “Stories From the Heart” series and interviewing more than 50 Asian Americans on love and what it means to them. We met tons of great people during that project which was back in February 2020. Shortly after, a lot of the hate crimes against Asian Americans really sparked. We saw so many people who were really upset wanting to do something about it. During that time, because of COVID, we had not done anything with ESS. It was still just a YouTube channel.
We had decided to make ESS into a nonprofit organization because we felt that it would be a great way for people to channel their energies and what they want to do to tell Asian American and Pacific Islander stories. You can’t always rally or protest, but you can channel your feelings into a creative project and create something more meaningful, and we figured a nonprofit would be the best way for people to do this.
What is the mission of East Side Stories? What do you hope to achieve and inspire in others through your organization’s work?
ESS’ mission is to serve our creatives and to serve our community through education and storytelling. We hope that ESS is not only going to be a platform where we can spread education and information about being Asian American and Pacific Islander, but that it could be a meeting point for creatives to learn and share information and resources, and to connect with the community. A lot of businesses we see are not able to market themselves, so that’s where ESS would love to step in — “Let’s help you create a fun video to market your business. Let’s tell your story because you’re someone that’s doing amazing work for the community.”
What are some liabilities to think about when working on a film set and working in media production? How do you prepare for these liabilities for your crew and your organization?
We must make sure that our crew members are safe especially because of COVID liabilities, health liabilities, and any type of commercial liabilities. ESS currently operates as a volunteer-based organization so we’re all very bare bones right now. We’ve been using a lot of liability waivers to cover for ESS, but we hope to have more substantial compliance documents in place in the future.
Our Health and Safety Compliance Officer, Tori Wong, is a nurse foremost, and she’s an actress who works in media a lot and is a COVID compliance officer for other big sets. We worked together and created the health and safety protocols, so we follow a lot of what is recommended for standard businesses. For every single shoot that we have, crew members must check in with somebody on set that does COVID compliance. We have COVID compliance officers that go through training. Everyone must wear masks and do temperature checks, and there are particular zones that both talent and crew must stay in.
I know nonprofit insurance and liability is big, but because our organization is so young, and this is all our first time making a nonprofit, it’s been a lot of reading and learning. Taking a stab at the insurance part hasn’t come up yet, but I know it’s coming. We’re still in the process of getting our foundation set up, and then slowly rolling all the compliance into place.
2020 has been a rough year for small business owners, especially those in the Asian American community. Through your encounters and conversations with small business owners and other non-profits, in what ways have AAPI small businesses and the AAPI community demonstrated resilience and solidarity during the pandemic?
We’ve already collaborated with so many organizations and met so many people, and they’re all doing amazing work and bringing together businesses, for example, Welcome to Chinatown, Soar Over Hate, and Asians Fighting Injustice.
AAPI businesses have a fight in them and a huge will to live. That is why we’ve survived for so long, and ESS just wants to capture that. If we don’t amplify what everyone has been doing, people aren’t going to be able to see all the amazing work being done. It will inspire even more organizations to pop up.
Also, no one is afraid to share resources. I can message one organization and say, “Hey, I am trying to connect with someone with an organization who can do XYZ” and they will automatically help me get in touch with them. No one is gatekeeping, and that’s beautiful. That’s what community is about.
Let’s talk about ESS’ upcoming short film “An Essential Delivery”. How does this film capture the challenges and resilience of those working in AAPI small businesses and the gig economy?
This story is about a young woman who lost her marketing job and has to pick up a job as a food delivery worker, and she hides it from her mom, which is not the typical “model minority” story. The film is about essential workers. Shane was the one who came up with the idea after seeing videos of food delivery workers and their hardships. We put together a crew, and for a lot of them it was their first time working on a short. I saw people coming together, and I was blown away by the patience they had and in teaching the newer work crew members. We did it on a very small budget because all the people donated their time. We had around five restaurants that donated their space for us to shoot “An Essential Delivery,” so that was amazing because they didn’t even ask anything back from us.
Let’s talk about your TogethernESS program and your AAPI Community digital series. These provide an opportunity to engage and collaborate with AAPI businesses, organizations, and figures to share their stories. Can you give us insight on the work you do for these?
The TogethernESS program is something that we’re doing for the community. Organizations reach out to us when they want to create something, like a video or graphics, or attain any type of creative service. We can provide them with our nonprofit rate, or we work on a sliding scale with them. We’re still trying to build in a model where we can perhaps provide pro bono. We also want to be able to pay our creatives for their hard work. The TogethernESS program also includes work that we do with Soar Over Hate for their Care Fair event and Asians Fighting Injustice and their rallies. It’s been great so far.
The AAPI Community digital series lives on our YouTube channel. That series is focused on profiles of community members and organizations. When someone on our team has a particular person that they want to do a profile on and it aligns with our mission, we go and cover their story.
What are your goals for ESS in 2021 and beyond? What projects do you have in the works and is there anything you’re particularly excited to share with your audiences?
This year, we’re doing a feature length film documentary on Ace Watanasuparp, the owner of Spot Dessert Bar. Typically, our schedule is three short films a year, and we’re also launching our mentorship program. These are things I’m really excited about for 2022. This year we’ve been shooting a lot of the feature length film, and it’s been really cool to see and connect with all these awesome people. Other than that, just watching the organization grow and seeing and meeting people has been nice and heartwarming.
The future looks brighter every day for the cannabis industry.
From recent findings that cannabis components may lead to treatment or even prevention of coronavirus infection in lung cells to yesterday’s vote by the House of Representatives in favor of the Safe Banking Act, barricades to full legalization just keep falling.
This isn’t the first time the act – which would protect banks from federal penalties for doing business with cannabis-related businesses that comply with state laws – has made it through the House. It was first introduced in March 2019, and the House has approved it three times, only to have the Senate Banking Committee block its progress. But with the current Democrat majority, apparent bipartisan support, and growing public and state-government support for cannabis legalization, the fourth time just might be the charm.
The Drug Enforcement Agency characterizes cannabis as a Schedule I drug, defined as having “no currently accepted medical use and a high potential for abuse.” Without legislative change, banks and insurers can’t do business with business without risking running afoul of federal drug laws.
“There’s more optimism now and an assumption that they’re going to work to pass some of these bills that have been in motion for a while now, but never hit the point of actually moving forward,” said Max Meade, cannabis insurance advisor at Brown & Brown Insurance. “I’m also seeing more conversations around working to bundle some of these bills that they’ve been talking about and do a larger cannabis reform.”
As states continue to decriminalize marijuana to different degrees, one of the biggest issues facing cannabis businesses is the 280E federal tax burden, which means cannabis businesses can’t expense the normal cost of goods or anything a normal business can during the course of operation, from utilities to payroll and rent. This means marijuana businesses often pay federal income tax rates in the 65–75 percent range, compared to 15-30 percent for other businesses. They are taxed on their gross revenues, unlike all regular businesses, which pay tax only on income after their expenses.
The Small Business Tax Equity Act would provide an exception into the Internal Revenue Code to let cannabis operators – as long as they’re in compliance with state laws – make the same deductions as any other business.
Easier to operate
Passage of these laws would make it easier for cannabis-related businesses to operate. The CLAIM Act would let these businesses obtain insurance to cover the same risks of theft, damage, injury, loss, and liability as all other businesses.
“There are upwards of 30 surplus lines carriers and several managing general underwriters that currently service the cannabis industry across many lines of coverage,” the National Law Review reports. “There also is a small handful of admitted carriers that operate in California, and most recently in Arizona.”
While market capacity for property, commercial general liability, product liability and workers’ compensation coverage has expanded – these policies remain more expensive than the same coverage purchased by similar companies in other industries. Passage of the CLAIM Act would open the doors for more insurers and should bring the cost of insuring marijuana-related businesses much less expensive.
THC persistence a challenge
But challenges will remain – particularly with respect to the workplace. When marijuana was illegal under both state and federal law, employers would typically prohibit employees or employment candidates from using marijuana off-duty as a condition of employment. But as states have begun to permit medical marijuana, things have gotten a bit hazier.
No state requires companies to accommodate on-duty marijuana use. As with recreational marijuana, no state that permits medical marijuana requires employers to accommodate on-duty marijuana use, possession, or impairment. States will often explicitly state that medical marijuana laws don’t affect an employer’s drug-free workplace policy.
Does workers compensation cover a workplace accident in which the injured employee tested positive for marijuana? Persistence of THC – the main psychoactive compound in marijuana – complicates this question, and state courts have differed on this issue, depending on the individual details of each case.
By Loretta Worters, Vice President, Media Relations, Triple-I
When mega containership Ever Given wedged herself across a one-way section of the Suez Canal during a sandstorm last month, it brought 10 percent of global trade to a halt for a week. The ship – owned by Taiwanese container transportation and shipping company Evergreen Marine Corp. – was finally refloated and traffic in the canal was able to resume.
A Risk & Insurance cover story, published by Triple-I sister organization Risk & Insurance Group (RIG), describes how – in the context of a trend toward larger container vessels and a global supply chain already disrupted by COVID-19 – this incident should serve as a wake-up call for insurers.
Looking at the Ever Given grounding and disruption of canal traffic from a marine insurance perspective, RIG author Gregory DL Morris highlights the impact on cargo insurance claims and the potential for cargo spoilage. He also discusses compromised maneuverability of these massive vessels in high winds and references an increasing number of on-board fires, challenges surrounding salvage, and lack of suitable repair facilities, noting, “Underwriters need to be aware of this.”
Despite the likelihood that immediate property loss in this case will be minimal, megaships pose serious challenges to marine insurance and risk management. According to MDS Transmodal, a transport and logistics research firm, average vessels capacity grew 25 percent between 2014 and 2018, with ultra-large containerships accounting for 31 percent of the total capacity deployed in the second quarter of 2018. Transmodal attributes this trend to industry consolidation through mergers and acquisitions, as well as growing trade lane co-operation through alliances, slot sharing, and vessel-sharing agreements.
Even as traffic through the canal resumes, terminals will experience congestion. In addition, the severe drop in vessel arrival and container discharge in major terminals will aggravate existing shortages of empty containers available for exports. Delays in shipments, increased costs, and product shortages are therefore likely.
“The fact is that an already heavily disrupted maritime supply chain has taken another hit that will further affect its fluidity, with long-term consequences related to congestions, lead times and predictability,” said Jens Roemer, chair of the Sea Transport Working Group of the International Federation of Freight Forwarders.
While traffic through the canal is now moving, the global supply chain’s vulnerabilities may only now be beginning to become clear.
“Whether a blizzard in Texas or a sandstorm in Egypt,” Morris writes, “the narrow focus on minimal inventories that rely upon just-in-time delivery leaves little allowance for weather or accident.”
By Loretta Worters, Vice President, Media Relations, Triple-I
During an exclusive Groundhog Day webinar presented to Triple-I members by Triple-I and Milliman, experts talked about what the insurance industry can expect in 2021.
Auto Insurance Report editor Brian Sullivan looked at both personal and commercial auto insurance. “For the first nine months, private passenger auto liability written premium was down less than two percent, but losses incurred were down more than 14 percent with loss ratios likely to be in the mid-50s.”
On the commercial side, Sullivan noted that commercial auto trends aren’t as powerful as those for personal lines. “Things have gotten better in terms of losses, but not that much better; certainly, nothing like personal auto,” Sullivan said.
Jeff Eddinger, senior division executive at the National Council for Compensation Insurance (NCCI), gave an early look at 2020 results for workers compensation insurance. “The pandemic has landed the U.S. economy into a recession. Significant job losses combined with changes in wage and rate levels have put downward pressure on premiums. NCCI estimates that private carrier net premium written will be down about 8 percent for 2020.”
Eddinger noted that as the virus began to spread in 2020, so did the concern that COVID claims could overwhelm the system. “Fortunately, that has turned out not to be the case. At the same time, there has been a drop in non-COVID claims, due in part to more remote work and less work-related driving. So far, incurred losses have decreased about 8 percent, in line with the drop in total premium. As a result, the estimated calendar year combined ratio for 2020 is almost unchanged from 2019 at 86. This would be the seventh straight year of underwriting profit for workers compensation.”
The industry is financially strong but continues to face uncertainty, Eddinger warned. “The vaccine rollout has begun, but new cases of the virus in the U.S. have soared to record levels. In addition to COVID claims, industry leaders are concerned about regulatory activity related to presumptions, the economic downturn and the long-term impact of working from home,” Eddinger said.
That the insurance industry alone can’t be expected to cover future pandemic risk seemed to be a given at yesterday’s hearings by the House Finance Subcommittee on Housing, Community Development, and Insurance.
But, as is so often the case, the devil is in the details.
The session – Insuring Against a Pandemic: Challenges and Solutions for Policyholders and Insurers – was chaired by Rep. William Lacy Clay. In his opening statement, Clay said, “It is not realistic or practical to expect the insurance industry to shoulder the astronomical cost of a global pandemic. The American Property and Casualty Insurance Association has estimated that paying all [COVID-19-related] claims, regardless of exclusions, would amount to $1 trillion per month.”
With respect to business interruption coverage claims currently being adjudicated, Clay referenced both the virus exclusions in most commercial property policies and the lack of “direct physical damage or loss” in COVID-19-related cases.
John Doyle, president and CEO of global insurance broker Marsh, testified on the importance of a public-private partnership to address pandemic risk, as well as to the need to “act now” on a solution for future pandemics.
“Acting now on a public-private pandemic risk solution will accelerate the economic recovery by reducing uncertainty,” Doyle said. “Moving forward, capital markets will seek assurances that companies have protection against prospective pandemic risk. The pace of recovery will depend upon the nature and degree of confidence in the marketplace.”
Doyle said the credit and power of the U.S. government is essential – “at the same time, I believe the insurance industry has a role to play.”
The Pandemic Risk Insurance Act (PRIA), introduced by Rep. Carolyn B. Maloney of New York, provided the jumping-off point for the testimonies and discussions of alternative proposals. PRIA, patterned after the Terrorism Risk Insurance Act (TRIA) put in place after the 9/11 terrorist attacks, was generally recognized as a good start – but several other structures were proposed to address perceived weaknesses.
One is the Business Continuity Protection Program (BCCP), advanced by the National Association of Mutual Insurance Companies (NAMIC), the American Property Casualty Insurance Association (APCIA) and the Independent Insurance Agents & Brokers of America (Big “I”).
Brian Kuhlmann, chief corporate counsel for Shelter Insurance, speaking on behalf of NAMIC and APCIA, described BCCP as a program that “would provide straightforward revenue replacement for businesses and nonprofits of all sizes” using a parametric approach that wouldn’t require claims adjustment. Unlike traditional insurance, which pays for damage if it occurs, parametric insurance automatically pays when specific conditions are met – regardless of damage incurred.
Michelle Melendez McLaughlin, chief underwriting officer for the small commercial and middle market at Chubb, presented a “bifurcated” framework that would treat small businesses differently from mid-size to large corporations.
“Pandemics affect small and large businesses differently,” she said. The Chubb framework would cover small companies for up to three months of payroll and other expenses. Policyholders would be paid a pre-determined amount when the policy is triggered. “This provides policyholders with certainty that they will receive timely financial assistance after an event.”
For businesses with more than 500 employees, the Chubb proposal would create Pan Re – a federal reinsurance facility. “Private insurance companies that choose to sell coverage would write pandemic policies at market terms and retain some portion of the risk. The rest of the risk would be reinsured through Pan Re.”
R.J. Lehmann, senior fellow at the International Center for Law and Economics, agreed with other witnesses that the insurance industry isn’t equipped to handle pandemic risk alone. He went further to question whether insurance is the best structure for addressing this problem.
“Insurance is a system of risk transfer, not a system of economic relief,” Lehmann testified. “Even if private insurers could provide this coverage—on their own or with government support—it is not clear their incentives would align with public health goals or with the aims members of Congress likely have in mind.”
The best argument for a public-private partnership, he said, is that insurers can help policyholders mitigate risks. “But it’s important to ask, ‘Mitigate the risk of what’? The risk you’re trying to reduce is the risk that a business will shut down. But, in a pandemic, you want businesses to shut down. We want them to have a safety net so they can shut down and survive.”
Hartmann counseled legislators to take their time and get the solution right, drawing from all the options that exist.
“Let’s be humble about how little we know, even about the current pandemic,” he said. “Get help to the businesses, workers, and communities who need it now. Don’t legislate for the next pandemic while we’re in the midst of the current one.”
By James Ballot, Senior Advisor, Strategic Communications, Triple-I
It’s been more than eight months since COVID-19 first struck the U.S., and millions of small business owners are still hurting. All the while, a few plaintiffs’ attorneys are treating the pandemic as another opportunity to profit from costly insurance litigation.
At a time when businessowners are looking for leadership to bring much needed financial support, these same attorneys are hoping legislators and judges will help them retroactively rewrite business income (interruption) (BI) insurance contracts. One key figure in this effort is John Houghtaling, a New Orleans-based plaintiffs’ lawyer who was featured in a recent Bloomberg Businessweek profile.
Adds Michael Barry, Head of Media and Public Affairs, at the Insurance Information Institute, “Not one business interruption insurance policy in the U.S. was written on the assumption nearly every business would be interrupted at the same time.” Barry adds, “This is why regulators and judges are consistently siding with insurers who argue direct physical damage to property is needed to trigger a business interruption policy.”
Irrespective of insurers’ and trial attorneys’ competing points of view, the authors of the Bloomberg Businessweek article cite the need for timely and decisive action: “A yearslong legal battle might not be much help to struggling businesses,” the article states. As the end of 2020 approaches, litigation seeking to compel insurers to cover pandemic-related income losses appears likelier to further the lawyers’ interests as opposed to those of businessowners seeking financial support.
Other potential solutions are on the table, most of which are taking shape around the idea that the federal government is the only entity with the reach and financial resources to help businesses recover from an event the magnitude of a global pandemic. On this point, a growing consensus of legal scholars and insurance industry experts concur, with Stefan Holzberger, AM Best chief rating officer, concluding in commentary to a recent report, that “pandemic risk does not afford insurance companies any geographic diversification due to its global nature … Only a governmental program, or perhaps a public-private partnership, could provide the backstop sufficient to compensate for lost revenue to businesses.”
As a counterpoint to statements made by Houghtaling and other plaintiffs’ attorneys, Sherman Joyce, President of the American Tort Reform Association presents a competing vision for how American businesses can unite to recover economically from the COVID-19 pandemic: “Americans’ elected representatives — not the trial bar — should have the authority to regulate business within the U.S.” Joyce continues, “The courts must restore that balance of power by rejecting the dreaded return of regulation through litigation.”
By Sean Kevelighan, CEO, Insurance Information Institute
Insurers have responded quickly and effectively to 2020’s extraordinary volume of hurricanes, wildfires, and civil unrest. These events are resulting cumulatively in billions of dollars in insured claim payouts.
Yet a recent Forbes article stated that the owners of one of the largest Broadway theater chains were “shocked to learn that its insurance companies would not cover most of its losses during the COVID-19 pandemic.”
Making people more prepared and resilient is our fundamental goal at the Insurance Information Institute (Triple-I). We seek every opportunity to educate customers about how their insurance works before they suffer an insured loss. Part of this mission is to explain how pandemics are uninsurable. That’s because, unlike covered events, which are limited in time and geography, pandemics simultaneously affect everybody. This is something we’ve explained in briefings to legislators, legal experts and consumer and trade media.
Still, while insurers, regulators and the U.S. government work to deliver relief to business financially affected by future pandemics, we need to stay focused on the present. And to do this, we need to take a quick look into the past:
Insurance has been around for 350 years as a way for households, businesses and communities to recover and rebound after wildfires, hurricanes and other catastrophes. Time and again insurers have been there for their customers because that’s what they do. For example, in the months after 9/11, insurers paid out tens of billions of dollars to keep affected businesses afloat while New York and Washington, DC rebuilt from the rubble.
In 2020, insurers continue to perform their vital societal role, covering insured losses from record hurricane and wildfire seasons, as well as the most destructive civil demonstrations in more than a quarter-century. Insurance simplifies a rather complex risk management process and creates products that deliver simpler ways for people to be more prepared and resilient. Covering these hazards demands immense capital resources.
Questions? Your Policy Documents Have the Answers
Insurance is heavily regulated, and as the Triple-I reaffirmed at September’s annual summit of the National Association of Insurance Commissioners (NAIC), the industry we represent relies on a strong working partnership with regulators and government agencies across America to help make insurance work better for everybody.
One of the tangible results of this partnership is something that anybody can literally hold in their hands: insurance policy documents. Reading these documents to understand what you’re purchasing is an essential part of preparedness.
Business income (interruption) or BI insurance losses caused by a pandemic are not covered because direct physical damage, such as that caused by a hurricane or a fire, is what triggers a standard BI policy. As many courts and academics around the country have stated, neither a virus nor bacteria leads to the direct physical damage of a business’s structure. This contract language is well-established; moreover, every policy is approved by individual states before they are issued to BI policy holders.
We view it as a success when nobody is shocked by what’s covered, and what’s not, under their insurance policies. This is why the Triple-I regularly urges business owners to become familiar with their insurance documents and have regular conversations with their agent or broker to discuss anything they don’t understand.
In an age when we’re all accustomed to just clicking the “terms and conditions” box, ignoring agreements, paradoxically, has become something everybody can agree with. Social scientists consider this to be a form of cognitive dissonance: We know we should read our insurance policies, and yet few of us do. This is a behavioral pattern we’re all guilty of and the Triple-I understands there are many demands on a customer’s time.
Which brings us back to an essential point, that insurance companies prioritize their efforts and resources into making sure that everybody knows about the coverage they have and need.
Pandemics are uninsurable because insurers don’t collect premiums to cover business losses due to viruses and other pathogens. There are products available for this purpose, but an overwhelming majority of businesses decline to purchase them. These exclusions and the availability of pandemic insurance is a fact well known by many experienced professionals—notably risk managers and trial attorneys. The Triple-I is willing to work with anybody to make the public better aware of the risks and how to prepare for them.
The next pandemic surely will come. How insurers, their customers, and the federal government respond now will ensure our resources and energies are devoted to saving lives from all the threats the U.S. faces.