Category Archives: Emerging Risks

U.K. Business Interruption Litigation Seems Unlikely to Affect U.S. Insurers

The Financial Conduct Authority (FCA), which regulates insurers in the United Kingdom, has indicated that it doesn’t believe COVID-19-related losses trigger most business insurance policies because such policies typically require a direct connection between financial loss and physical damage to the insured property.

Think fire, flood, wind, or earthquake damage.

The FCA is now litigating a test case involving policies of eight insurers that don’t require property damage to trigger coverage (Hear a three-minute explainer from the Centers for Better Insurance).

Is this case relevant to U.S. property/casualty insurers? It depends on whom you ask.

The FCA is looking at 17 policy wordings from the eight insurers and asking whether COVID-19 triggers a payout. Based on other policies the regulator has studied, the Financial Times reports, the court’s ruling are “expected to apply to nearly 50 insurers, who sold coverage to 370,000 customers.”

Senior executives from specialist insurance and reinsurance underwriter Hiscox Group warned that the FCA’s eventual findings could drive additional COVID-19 losses to its reinsurance book, Artemis reports.

Tom Baker – an expert in insurance law and policy at the University of Pennsylvania – called the U.K. case a “one-way ratchet” for U.S. insurers.

“If the carriers lose or end up having a lot of coverage, that’s going to be bad for them here” in the United States,  Baker said. “I think if the carriers win, the insurance policies [in the U.K.] are really different. They tend to be named-peril, rather than all-risks policies. I think it will be easy to distinguish them.”

Jason Schupp, founder and managing member of Centers for Better Insurance, disagrees that an adverse ruling for U.K. insurers will have much of an effect on their U.S. counterparts.  

“In Europe, [FCA] authorization to provide miscellaneous financial loss insurance allows an insurance company to write business interruption insurance that does not require evidence of property damage” to pay a claim, Schupp says. Even though the United Kingdom is no longer part of the European Union, Schupp says, “U.K. law itself recognizes the miscellaneous financial loss class of insurance.”

What does this mean for pandemic business interruption coverage in the United States? Not much, according to Schupp.

“The outcome of the U.K. litigation is unlikely to be relevant to the dozens – or perhaps hundreds – of business interruption lawsuits making their way through U.S. courts, where the property damage question is front and center,” Schupp says.

He goes on to say that proposals coming out of Europe or the U.K. for pandemic insurance going forward – such as a Lloyd’s framework – contemplate non-property-damage business interruption insurance solutions…. These proposals do not appear compatible with the current U.S. insurance regulatory system.”

A ruling by the FCA is expected in mid-September. Last week, the regulatory body said that, while the case doesn’t address how any resulting claims payments would be calculated, “We may intervene and take further actions where firms do not appear to be meeting our expectations and treating their customers fairly.”

Electric vehicle sharing programs: What to know before you ride

The proliferation of electric ride-sharing services throughout the U.S. is fueled by demand for affordable and green transportation options. Vehicles ranging from e-scooters, electric bicycles and mopeds are easily accessible via apps.

But regulators have to  balance the popularity of the sharing programs with public safety, as injuries and even a few fatalities have occurred.

Riders also need to be aware of the insurance issues surrounding these programs.

A ride-share company’s insurance policy might not cover a user in the event of an accident. Many companies require users to assume all liability arising out of their vehicle’s use.

That means if you’re driving a one of these vehicles and get in an accident:

  • You may have to pay out of your own pocket to repair property damage.
  • You may have to pay your own medical bills if you’re injured. You may also be able to use your health insurance.
  • If you injure a pedestrian, you could be held liable for their injuries.
  • If you damage another person’s vehicle or other property, you could be held liable for repairs.
  • That’s why it’s important to read the company’s user agreement, so you know your responsibility as a rider.

As for your own insurance, whether you’re covered depends on the specifics of your policies. You should speak to your insurer or agent. Expert opinion and wording are critical.

Medical costs to treat injuries sustained while operating an e-scooter or moped are addressed under the injured person’s health insurance. If the person was injured while using the vehicle for work-related purposes, the person could be eligible for workers compensation benefits.

Whether a user’s personal insurance would cover any third-party liability arising out of an accident they caused or contributed to varies by policy.

Homeowners: A standard homeowners policy will typically not cover liabilities arising out of the use of a motor vehicle, usually defined as any self-propelled vehicle. Homeowners policies also exclude any liability arising out of a motor vehicle rented to an insured. Renters insurance also will not cover vehicle-related liability.

Personal auto: The coverage on a personal car insurance policy generally does not extend to a rented electric vehicle. That means if you’re involved in an accident while driving such a vehicle, your car insurance policy will probably not pay for medical bills or property repairs (yours or another person’s). Similarly, if you have an insurance policy for your own moped, it likely will not cover you when you rent one.

Personal liability umbrella: Personal liability umbrella policies (PLUP) offer an extra layer of protection when an insured exhausts the limits of their underlying homeowners or auto policy. Such policies can also provide coverage for perils that are excluded from the underlying insurance policies. For example, unlike an auto policy, a standard PLUP doesn’t usually exclude vehicles with fewer than four wheels and therefore may provide some coverage for electric vehicle liabilities.

The bottom line is: check with your insurer or agent about your coverage.

Social Inflation
and COVID-19

Social inflation” refers to rising litigation costs and their impact on insurers’ claim payouts, loss ratios, and, ultimately, how much policyholders pay for coverage. While there’s no universally agreed-upon definition, frequently mentioned aspects of social inflation are growing awards from sympathetic juries and a trend called “litigation funding”, in which investors pay plaintiffs to sue large companies – often insurers – in return for a share in the settlement.

If the idea of social inflation was controversial before the start of the coronavirus pandemic and subsequent economic lockdown, with some calling it a hoax, the subject must now be looked at through the additional lens of COVID-19’s long-term impact on liability questions, plaintiff expectations, and juror attitudes.

A.M. Best said early in the crisis that COVID-19 could produce a big increase in social inflation. The reason: expectations that businesses would sue their insurers in an attempt to access their business interruption coverage for losses relating to the coronavirus pandemic. Such lawsuits have been and continue to be brought.

Hiscox warns about rising Florida risk

Despite reports of rate increases across the property catastrophe reinsurance sector at the mid-year renewals, a Hiscox executive has warned that these improvements could be offset by rising costs of risk in Florida, Reinsurance News reported

After consecutive heavy loss years, some fairly significant loss creep and low interest rates, coupled with the impacts of the COVID-19 pandemic, reinsurance rates reportedly trended in a positive manner at the mid-year renewals, with rises of 20% – 30%, or more in some instances. While reinsurers will welcome rate increases after a prolonged soft market and subsequent pressured returns, the improvements might not be sufficient to account for the increased risk in the region’s market, according to Ross Nottingham, Chair of North America at Hiscox Re and ILS, a division of global insurer and reinsurer Hiscox.

“Why? Because these increases haven’t yet covered our own view of the increased risk in the Florida market, which suggests that the amount of risk going into these programmes is a lot higher than thought last year,” Nottingham said. “That means you might get a 30 percent increase on the programme, but if you’ve measured the risk to the layer and established that it’s potentially worth 40 percent more in premium than it was last year, the margin has in fact decreased.”

Nottingham said the increases being seen in the Florida market in 2020, while positive, are barely covering the additional risk that is out there as evidenced by the substantial levels of adverse loss development on prior year events.

“And what’s continuing to drive loss creep? The villain of the piece is social inflation – a factor not yet captured in the vendor cat models the industry benchmarks for measuring hurricane risk.”

Nottingham says that in Florida social inflation comes from a variety of sources, ranging from assignment of benefits (AOB) litigation to loss adjustment inflation.

AOB abuse has been mitigated somewhat by recent reform legislation. But Nottingham says this reform is expected to have a limited impact on catastrophic claims being litigated and related inflation of a claim once lawyers start to get involved through other avenues.

“Despite insurers’ best efforts to change their original policy forms or to de-risk in the worst performing areas, it is expected that AOB or equivalent abuse will continue after the next big loss event,” says Nottingham. “Two years ago, the market thought the physical attributes of Irma were akin to a one in 10-year event. The loss now – with the advent of social inflation-fueled loss creep – looks more like the cost of a one in 20-year event, but there is no new science to show the expected vulnerability or hazard has changed.”

Another important element impacting reinsurance rates this year is the ongoing COVID-19 pandemic, which, Nottingham says hasn’t been factored into pricing for the months ahead. Forecasters predict an above-average level of hurricane activity in the Atlantic in 2020, which, coupled with the unprecedented impacts of the virus outbreak, presents unique challenges for the industry.

How Court Lockdowns May Turn Social Inflation Tide

COVID-19 may affect some aspects of social inflation in a different manner, Claims Journal reports.

Speaking at a recent Advisen event – Social Inflation: Truth or Fiction – defense attorney Ellen Greiper reported receiving more than the usual number of phone calls from plaintiffs’ attorneys.

“I have had a flurry of phone calls from plaintiffs who are now willing to take that [settlement] amount I had offered before,” said Greiper, a partner with Lewis Brisbois, Brisgaard & Smith. With courts having been closed as part of the general pandemic lockdown and now slowly reopening, “Those plaintiffs are realizing that they are not going to get a trial for at least two years, no matter what status their case may be and whether it’s discovery or past that. So now they are coming out of the woodwork.”

She added that the plaintiffs are “starting to realize that when we all come back and the jurors don’t have jobs or they’ve been furloughed, they’re not getting $10 million on a cervical fusion. They may realize that’s a ridiculous amount of money.”

World’s Insurance Markets Hit Hard by COVID-19: Triple-I

The world’s 10 largest insurance markets are cumulatively expected to see gross domestic product (GDP) decrease by 4.9 percent in 2020 compared to 2019 because of COVID-19, according to a new Insurance Information Institute (Triple-I) report.

“Given the scope of the downturn so far in China, North America, and Western Europe, the virus’s continuing expansion in the Southern Hemisphere, and the possibility of further rebounds in the former this fall and winter, the likelihood of a V-Shaped recovery is extremely low,” writes Dr. Michel Léonard, Vice President & Senior Economist, Triple-I, in the Global Macro and Insurance Outlook: Q2 2020. “The most likely outcome for the rest of 2020 is a slow recovery, with multiple false starts and step backs, that does not stabilize until well into 2021.”

CORONAVIRUS WRAP-UP: PROPERTY AND CASUALTY (4/17/2020)

Auto Insurance
Stay-at-home Pandemic Orders Reduce Auto Claims Almost by Half
As Coronavirus Empties Streets, Speeders Hit the Gas
Business Interruption
UK Watchdog Orders Insurers to Pay Small Business Claims Quickly
Cannabis Insurance
Pandemic Could Shrink Cannabis Insurers’ Premiums, Market
Cyber Insurance
Preventing Losses Due to Growing Cyber Crime During Coronavirus Crisis
As Attacks Rise, Paladin Offers Cybersecurity Platform Free to Insurance Agencies
Disaster Preparedness
‘Uncharted Territory’ as Wildfire Fighting Adapts to Pandemic
Insurance-Linked Securities
Artemis Live: Interview with Tom Johansmeyer, Head of PCS
Litigation
Nashville Bar Sues Insurer Over COVID-19 Loss Claim. Experts Say It Won’t Be the Last
Businesses Warn Fear of Liability Lawsuits Could Stall Rebooting of Economy
P/C Industry Impact
Suddenly There is Big Demand for Pandemic Cover, Says Underwriter
Chubb CEO: Forcing Insurers to Pay Pandemic Loss Claims is ‘Plainly Unconstitutional’
Allianz CEO: Pandemic Hit “Like a Metororite”
From Hacker Attacks to Shareholder Lawsuits, Insurance Industry Braces for COVID-19 Fallout
Public Health and Safety
What FDA Says About Food Safety Amid COVID-19
Travel Insurance
Travelers Consider Their Risk Tolerance
HOLIDAY HELL How to Get a Refund on Your Holiday if it’s Cancelled and How Long Should it Take to Get Cash Back
Workers Compensation
Workers Compensation in Wake of COVID-19

From the Triple-I Blog:
INSURERS RESPOND TO COVID-19 (4/17/2020)
TRIPLE-I BRIEFING: SURPLUS IS KEY TO INSURERS KEEPING POLICYHOLDER PROMISES
PUTTING CAR INSURANCE PRICES INTO PERSPECTIVE

CORONAVIRUS WRAP-UP: PROPERTY AND CASUALTY (4/16/2020)

Legislation and regulation
Democrats Plan Legislation to Force Insurance Companies to Pay Out for Pandemic Losses
Thompson Introduces the Business Interruption Insurance Coverage Act
Lawmakers Advocate Stimulus Aid to Insurers on Business Interruption
SC Proposes Bill Over Coronavirus-related Business Interruption Claims
NJ offers grace period for insurance premium expenses
Coronavirus Regulations: A State-By-State Week In Review
Litigation
COVID-19, business interruption and bad faith litigation
P/C Industry Impact
No Evidence COVID-19 Industry Loss Will Match Large Catastrophe Years: Flandro
How Insurance Claims Pros Are Adjusting to Pandemic Complications
COVID-19 Response ‘Could Bankrupt the Insurance Industry’: Insurance Defense Lawyer
Coronavirus response: Short- and long-term actions for P&C insurers
Auto Insurance
Analysts: Auto Insurance Coronavirus Rebates a Solid Move in Short Term
Will Fewer Drivers on the Road Mean Lower Auto Losses? It Depends
Auto Insurers Offer Rebates as Traffic Abates During Pandemic
Business Interruption
Neglecting Idle Facilities Amid COVID-19 Will Cost Companies, Warns FM Global
Cyber
Working From Home? Don’t Let Cyber Criminals Break In
Hospital Hackers Seize Upon Coronavirus Pandemic
Workers Compensation
COVID-19 Comp Expansions Could Have Significant Impact on Industry

Litigation during the coronavirus pandemic

By Brent Carris, Research Analyst, Triple-I

The coronavirus crisis is taking a toll on the U.S. legal system as courts are restricting access and altering procedures. Dentons, a global law firm, addressed  the impact of COVID-19  on ongoing cases in a recent webinar led by Michael Duvall, Partner; David Quam, Counsel; and Kelly Graf, Managing Associate.

Litigators have ongoing responsibilities to their clients to keep up with key deadlines, during the “slowdown.” These responsibilities include keeping them informed of scheduling, continuing to meet filing deadlines, and advocating for the clients’ interests. Judges have significant discretion to keep their cases moving along.

The webinar covered some of the litigation risk facing businesses with “enterprising” plaintiff’s lawyers actively looking for clients. The risks include data breaches arising from remote workers using unsecured home computers to access confidential data; safety and compliance issues related to remote work; exposure to the virus by employees who are not working remotely; event cancellation; claims of false or misleading advertising against companies capitalizing on demand for products like  hand sanitizer; and price gouging.

Dentons has put together a 50-state tracker that it’s maintaining of coronavirus-related orders, directives, financial assistance, health and business directives, and updates on court and legislative sessions.

Coronavirus Wrap-up: Property and Casualty (4/9/2020)

Estate of Illinois Worker Who Died From COVID-19 Sues Walmart
Pricing Impact of COVID-19 Likely ‘Dramatic’: MarketScout
Federal and State OSHAs Overrun With COVID-19 Complaints
Insurance Companies Offering Relief During Pandemic
Options for Those Struggling to Pay Their Auto Insurance Premiums During Pandemic
Addressing Challenges of COVID-19: From Underwriting to Claims
Rise in Searches for ‘How to Set Fire’: A Sign Insurance Fraud Beckons as Economy Crashes?
Zoom Sued for Not Disclosing Privacy, Security Flaws
Sailors Cleaning Coronavirus-Stricken Carrier Lack Protective Gear
Colorado’s Marijuana Businesses Can Remain Open During Pandemic but Say They’re Still Struggling
Practical Business and Insurance Considerations for Hotels, Restaurants During COVID-19 Crisis
Is It Safe To Travel Anywhere? Your Coronavirus Questions Answered
SBA Overwhelmed with Demand. Is it Up to the Task of Responding to Coronavirus?
Driving Less During Coronavirus Outbreak? You Could Get an Auto Insurance Discount
Progressive, Travelers, USAA Latest to Offer Discounts, Other Accommodations
Insurance Industry Charitable Foundation COVID-19 Crisis: IICF Children’s Relief Fund
Museums Hope Thieves Stay Home Too
A.M. Best: Event Cancellation Insurers May Exclude Future Pandemics
U.S., Britain Warn That Hackers Increasingly Use Coronavirus Bait

Coronavirus Wrap-up: Property and Casualty (4/8/2020)

An article in Claims Journal: Anticipated Coronavirus Claims Scenarios Across Major Coverage Lines discusses the wide range of insurance lines in which claims could rise, whether as a direct result of the pandemic or of social, institutional, and governmental reactions to it.

The Financial Times reports on two shareholder lawsuits relating to coronavirus that have already been launched in the United States, one against Norwegian Cruise Lines, the other against a pharmaceutical company called Inovio.

And, in a new publication, Allianz Global Corporate and Specialty (AGCS), Coronavirus: Safety Measures for Businesses Forced to Temporarily Close Their Premises, AGCS experts provide an overview of general security and prevention measures to help avoid physical damages.

An NBC6 (Miami) report highlights actions that some major insurers are taking to provide relief to their customers who are facing financial difficulties due to the coronavirus pandemic. Said Sean Kevelighan, CEO of Triple-I, “In the insurance community, we refer to ourselves often as financial first responders and you’re really starting to see that kick in right now.” Some companies are allowing customers to delay payments without penalties or initiate a personal payment plan. A few are offering relief in the form of paybacks to customers.

Other recent articles related to coronavirus from a property and casualty insurance perspective:

Auto

A New York Daily News article describes the rebates auto Insurers are offering to their customers due to coronavirus-induced driving lull. Liberty Mutual, American Family and Allstate are among the companies offering refunds.

Triple-I’s CEO Sean Kevelighan was quoted in a Los Angeles Times column and appeared in a Miami NBC affiliate segment about economic relief for drivers.

A Winknews report discusses the assistance available to customers during the coronavirus pandemic and includes an anecdote from a policyholder who was told by his insurer that he couldn’t get an extension. Triple-I’s Mark Friedlander says this customer’s experience is not the norm.

Business Interruption

Triple-I CEO Sean Kevelighan was quoted in Washington Examiner and Santa Rosa, Calif. Press Democrat articles on business interruption coverage.

Artemis published this interview with PCS’s Tom Johansmeyer on silent pandemic risk.

The Financial Times reported on the growing controversy over how much companies can claim from their business interruption insurance policies related to the coronavirus pandemic.

Cyberrisk

Cyber Perspectives on Coronavirus – Audio panel on the PLUS Blog

The National Insurance Crime Bureau (NICB) and the Cybercrime Support Network (CSN) announced they are partnering to educate online users about scams surrounding COVID-19, and what consumers need to watch out for when surfing the web, working online, or e-learning from home.  NICB and Cybercrime Support Network Partner to Warn the Public About COVID-19 Scams

Additional resources:

Flood

As local, state and federal agencies scramble to react to the public health needs of COVID-19, cities and towns must also keep one eye on the weather forecast and river levels, according to this Chicago Tribune article.

Workers Compensation

The Minnesota Legislature passed a workers’ compensation bill Tuesday to cover first responders, health care workers and daycare workers. The legislation is effective April 8 and is in place until May 1. Minnesota to Ensure Workers Comp to Responders With COVID-19

Triple-I’s Daily newsletter covered many of the preceding stories this morning. To subscribe to the Triple-I Daily contact daily@iii.org.

Helping customers, employees and the community: Insurers respond to COVID-19

We’ve been following the initiatives launched by insurance companies to alleviate the impact of the coronavirus crisis (see Insurers Respond to COVID-19). Here are several more examples of insurers’ commitment to helping their agents, employees, customers, and the broader community weather the pandemic.

The Hanover has taken several steps to help ease the burden for customers, including:

  • Considering a covered premise as “occupied” while mandatory closures are in effect
  • Extending rental car days if a policyholder’s vehicle is in the shop and cannot be repaired or returned
  • Paying additional living expenses to homeowners who are forced from their homes following a covered loss
  • Offering flexibility on bill payment options for those experiencing financial hardship
  • A 60-day hold on cancellations and non-renewals for non-payment
  • Permitting business use of hired, non-owned autos for delivery purposes at no additional charge and extending personal auto coverage to individuals delivering food, medicine, and other essential goods at no additional charge

The company is also investing in  relief efforts, including $500,000 to local non-profits to provide pandemic-related assistance to people and organizations across the country; donating critical medical supplies and masks to health professionals; and collaborating with corporate teambuilding company Cheeriodicals to deliver “cheer-up” gift packages to local hospitals to show  appreciation for health care providers.

Liberty Mutual has created a $4 million fund offering low-threshold, immediate grants of up to $10,000 for 450 community partners – with priority given to groups providing healthcare or serving the homeless, elderly, and other populations deemed at highest-risk.

Liberty Mutual employees continue to be able to make online charitable donations that are supported further by company gifts.

The company has also enabled employees to work remotely and reports no impact to normal customer service operations.

The MetLife Foundation announced on March 31 that it is committing $25 million to the global response to COVID-19 in support of communities impacted by the pandemic.

The grant funding from MetLife Foundation will span all regions where MetLife operates and address both short- and longer-term relief efforts. 

“Supporting and protecting people is at the core of who we are and what MetLife stands for – in our business and in the Foundation’s giving,” said MetLife President and CEO Michel Khalaf.

Initial grants will support communities and people with urgent needs for food, healthcare, childcare, and direct financial support.

As part of this commitment, MetLife Foundation and other MetLife entities have already pledged $4 million to relief efforts in Asia, EMEA, Latin America, and the United States, including $1 million to U.S. food banks to help them deal with increased demand for their services as a result of coronavirus.

State Farm is donating millions of dollars to relief efforts, including Feeding America, American Red Cross, and the Illinois COVID-19 Response Fund. Additionally, the company has also donated hundreds of masks and other supplies to local hospitals and teamed up with the Atlanta Hawks to help provide meals to vulnerable populations and healthcare workers in Atlanta.

State Farm has also transitioned most employess to work from home arrangements and has set-up a matching-gift program in which employees donations to qualified nonprofits can be matched by the State Farm Foundation.

State Farm customers who are experiencing financial hardships are encouraged to call their agents to discuss assistance options.

Westfield Insurance is providing billing options for financial hardships and suspending all policyholder cancellations until May 31, 2020, or as directed by each state.  Extended payment plan may be offered to those policyholders. As of March 20, 2020, late fees also will be waived through May 31, 2020, or as directed by each state.

Westfield will contribute nearly a million dollars toward nonprofit partners, including the Akron Canton Foodbank, Cleveland Foodbank, United Way of Cleveland, Feeding Medina County, and Feeding America.

Westfield’s foundation is matching employee donations to their local foodbank or United Way dollar for dollar up to $50. The company is also working with agency partners across the country to distribute Legacy of Caring grant dollars for them to donate to nonprofits in their community who are challenged because of COVID-19.

As a regulatory/government solution, trade groups representing insurers have voiced support for the proposed COVID-19 Business and Employee Continuity and Recovery Fund. It would be financed by the federal government and provide essential funds to impacted employers and employees.

Tell us how your company is contributing to the pandemic relief efforts: communications@iii.org.