A North Carolina court has ruled that Cincinnati Insurance Co. must pay 16 restaurants’ claims for business income (interruption) losses due to government-ordered COVID-19 shutdowns – a decision that runs counter to those of most judges who’ve ruled on similar cases.
As hundreds of COVID-19-related lawsuits regarding business interruption coverage make their way through U.S. courts, judge after judge has found in favor of insurer defendants. The central point has been that coverage depends – as specified in the insurance policies – on the policyholder suffering a “direct physical loss.”
“Business income (interruption) policies generally reimburse a business owner for lost profits and continuing fixed expenses when its facilities are closed due to direct physical damage from a covered loss, such as a fire, a riot, or a windstorm,” said Triple-I CEO Sean Kevelighan. “Insurers have been prevailing nationwide in nearly all of the litigated COVID-19 BI lawsuits because, as North Carolina’s Insurance Commissioner has noted, ‘Standard business interruption policies are not designed to provide coverage for viruses, diseases, or pandemic-related losses because of the magnitude of the potential losses.’ ”
“Policy language controls whether COVID-19 interruptions are covered,” said Michael Menapace, a professor of insurance law at Quinnipiac University School of Law and a Triple-I Non-Resident Scholar. “The threshold issue will be whether the insureds can prove their business losses are caused by ‘physical damage to property’.”
Cincinnati Insurance has said it plans to appeal the ruling.
Future of American Insurance and Reinsurance (FAIR) has released a new interactive tool to help showcase the need for a federal solution to pandemic relief. The Business Interruption Insurance “explainer” utilizes digital storytelling techniques to help clarify information about this complex topic.
The digital explainer complements the FAIR campaign’s other recently-released digital assets, including a video overview of BI and pandemics, and a primer deck that provides quantitative backing to the assertion that pandemics cannot be privately insured.
As trial attorneys attempt to retroactively force uninsurable pandemic coverage in business interruption insurance contracts, this tool is designed to show what business interruption insurance covers, how surplus helps pay for covered perils such as hurricanes and wildfires, how insurers have stepped up to help policyholders, and the need for a federal solution to the pandemic.
ABOUT FAIR FAIR is an initiative of the Insurance Information Institute and its member companies whose mission is to ensure fairness for all customers and safeguard the industry’s longstanding role as a pillar of economic growth and stability.
On September 29, the American Action Forum (AAF) hosted an event convening experts to discuss the urgency of government-backed financial relief for businesses whose incomes have suffered under the coronavirus pandemic conditions and what challenges lie ahead.
Entitled “Assessing Financial Support for Businesses During the Pandemic,” the discussion was centered on the following key topics:
The impact and success of the Paycheck Protection Program and the Federal Reserve’s emergency lending programs, particularly the Main Street Lending Program
Pandemic business interruption insurance and the potential for a federal pandemic program
Protecting businesses from shouldering excessive costs due to the new field of coronavirus litigation
Among the event participants was Insurance Information Institute (Triple-I) CEO Sean Kevelighan. In a discussion with AAF’s Director of Financial Services Policy Thomas Wade, Kevelighan provided an overview of the business interruption (BI) insurance landscape in the context of the pandemic. Key highlights included:
Global pandemics are largely uninsurable. “Compared to other covered catastrophes—hurricanes, wildfires, vandalism from civil unrest—a pandemic is not limited to time or geography. What we’re seeing now with COVID-19 is impacting every community, every economy, and all at the same time. And with this, from an industry that relies on the law of large numbers, you simply can’t price risk in a way that would be efficient.”
Standard business interruption (BI) insurance necessitates direct physical damage. “Beyond the enormity of a pandemic catastrophe, a virus does not cause direct physical damage, which is nearly always needed to trigger a property insurance policy, particularly for businesses insurance and business interruption insurance policies.”
The lack of a federal system to provide the critical financial relief businesses has created an opportunity for trial attorneys to capitalize on business owners’ desperation. “Sensing [business owners’] desperation, trial attorneys have unfortunately dusted off their playbooks and seized on the opportunity. They’re selling a false sense of hope to consumers; they’re filling court houses with litigation that is attempting to retroactively rewrite contracts by manipulation of language and interpretations.”
As insurers work to meet promises for policyholders facing covered events such as wildfires, forcing insurers to retroactively cover pandemic-related losses is detrimental to the insurance industry—a backbone of the economy. “The insurance industry is concerned about these misguided and costly attempts—mainly by trial attorneys—to take capital away that we’ve set aside for claims that are actively being paid right now as we are in the midst of extreme seasons of hurricanes and wildfires. We’ve also seen incidents of rioting and civil unrest. To be clear, our own economic analysis at Triple-I shows that any attempt to retroactively pay business interruption claims would put systemic strain on the insurance industry. Notably, this industry was one of the financial services industries that weathered our previous recession well because of how safely we manage our capital. But in this case, it would only take a matter of months to bankrupt the industry.”
More about this discussion and the broader state-of-play for business relief is available from a companion report released by Thomas Wade. For more information on the ongoing business interruption debate, visit fairinsure.org
In the U.K. case, Schupp writes, “the fundamental theme running through the insurers’ defense was that the policies only covered localized outbreaks, not global pandemics.”
“More to the point for U.S. property/casualty insurers,” says Michael Menapace, a professor of insurance law at Quinnipiac University School of Law and a Triple-I non-resident scholar, the U.K. case involved disease coverage – “an affirmative coverage not included in most U.S. commercial property policies.”
U.S. business interruption disputes so far have turned on two key policy features:
U.S. business-interruption coverage almost always requires property damage to trigger a payout.
Nearly all U.S. COVID-19-related court cases have involved policies that specifically exclude viruses.
“The U.K. court did not address either the question of property damage or the applicability of a virus exclusion,” Schupp writes.
As Menapace put it in a recent blog post about U.S. business-interruption cases, “Policy language controls whether COVID-19 interruptions are covered…. The threshold issue [for U.S. insurers] will be whether the insureds can prove their business losses are caused by ‘physical damage to property’.”
Perhaps the most emotionally compelling data point invoked by those who would compel insurers – through litigation and legislation – to pay business-interruption claims explicitly excluded from the policies they wrote is the property/casualty insurance industry’s nearly $800 billion policyholder surplus.
Many Americans hear “surplus” and think of a bit of cash they have stashed away for emergencies. And when you consider that nearly 40 percent of Americans surveyed by the Federal Reserve said they would either have to borrow or sell something to cover an unexpected $400 expense – or couldn’t pay it at all – that number may sound like overkill.
Not as much as you think
But policyholder surplus isn’t a “rainy day fund.” It’s an essential part of the industry’s ability to keep the promises it makes to policyholders. And although a number like $800 billion may raise eyebrows, when we look more closely at its components, the amount available to cover claims turns out to be considerably less.
Insurers are regulated on a state-by-state basis. Regulators require them to hold a certain amount in reserve to pay claims based on each insurer’s own risk profile. The aggregation of these reserves – required by every state for every insurer doing business in those states – accounts for about half the oft-cited industry surplus.
Call it $400 billion, for simplicity’s sake.
Each company’s regulator-required surplus can be thought of as that company’s “running on empty” mark – the point at which alarms go off and regulators start talking about requiring it to set even more aside to make sure no policyholders are left in a lurch.
By extension, $400 billion is where alarms begin going off for the entire industry.
It gets worse – or better, depending on your perspective.
In addition to state regulators’ requirements, the private rating agencies that gauge insurers’ financial strength and claims-paying ability don’t want to see reserves get anywhere near “Empty.” To get a strong rating from A.M. Best, Fitch, S&P, or Moody’s, insurers have to keep even more in reserve.
Why do private agency ratings matter? Consumers and businesses use them to determine what insurer they’ll buy coverage from. Also, stronger ratings can contribute to lower borrowing expenses, which can help keep insurers’ operating costs – and, in turn, policyholders’ premiums – at reasonable levels.
So, let’s say these additional reserves amount to about $200 billion for the industry. The nearly $800 billion surplus we started with now falls to about $200 billion.
To cover claims by all personal and commercial policyholders in a given year without prompting regulatory and rating agency actions that could drive up insurers’ costs and policyholders’ premiums.
Which brings us to today.
Losses ordinary and extraordinary
In the first quarter of 2020, the industry experienced its largest-ever quarterly decline in surplus, to $771.9 billion. This decline was due, in large part, to declines in stock value related to the economic recession sparked by the coronavirus pandemic.
Insured losses from this year’s Hurricane Isaias are estimated in the vicinity of $5 billion. Hurricane Laura’s losses could, by some estimates, be as “small” as $4 billion or as large as $13 billion.
And the Atlantic hurricane season has not yet peaked.
The 2020 wildfire season is off to a horrific start. From January 1 to September 8, 2020, there were 41,051 wildfires, compared with 35,386 in the same period in 2019, according to the National Interagency Fire Center. About 4.7 million acres were burned in the 2020 period, compared with 4.2 million acres in 2019.
In California alone, wildfires have already burned 2.2 million acres in 2020 — more than any year on record. For context, insured losses for California’s November 2018 fires were estimated at more than $11 billion.
And the 2020 wildfire season still has a way to go.
All this is on top of routine claims for property and casualty losses.
Four billion here, 11 billion there – pretty soon we’re talking about “real money,” against available reserves that are far smaller than they at first appear.
No end in sight
Oh, yeah – and the pandemic-fueled recession isn’t expected to reverse any time soon. Economic growth worldwide remains depressed, with nearly every country experiencing declines in gross domestic product (GDP) – the total value of goods and services produced. GDP growth for the world’s 10 largest insurance markets is expected to decrease by 6.99 percent in 2020, compared to Triple-I’s previous estimate of a 4.9 percent decrease.
If insurers were required to pay business-interruption claims they never agreed to cover – and, therefore, didn’t reserve for – the cost to the industry related to small businesses alone could be as high as $383 billion per month.
This would bankrupt the industry, leaving many policyholders uninsured and insurance itself an untenable business proposition.
Fortunately, Americans seem to be beginning to get this. A recent poll by Future of American Insurance and Reinsurance (FAIR) found the majority of Americans believe the federal government should bear the financial responsibility for helping businesses stay afloat during the coronavirus pandemic. Only 16 percent of respondents said insurers should bear the responsibility, and only 8 percent said they believe lawsuits against insurers are the best path for businesses to secure financial relief.
Business interruption losses from a global pandemic are uninsurable due to their sheer scope. Business interruption losses (in the U.S. alone) from the coronavirus are estimated at $220-$383 billion per month — an amount the industry could not and should not be expected to cover.
Americans across the country appear to recognize that only the federal government has the capacity to provide the relief business owners need. A recent poll initiated by Future of American Insurance and Reinsurance (FAIR) found that the majority of Americans believe the government should bear the financial responsibility for helping businesses stay afloat during the coronavirus pandemic.
The poll, conducted by CivicScience, found that only 16 percent of respondents said they believe insurance companies should bear the responsibility for helping businesses during the pandemic, and only 8 percent believe lawsuits against insurers are the best path for businesses to secure financial relief.
Business interruption insurance contracts were not priced to cover global pandemic risks, so forcing insurers to pay for claims their policies weren’t priced to cover would harm all policyholders, said FAIR in their commentary on the poll results.
A government-backed policy solution can provide immediate relief to struggling business owners and protect insurers’ ability to keep promises to policyholders for covered catastrophe losses, like damage from wildfires and hurricanes.
Trial attorneys’ attempts to retroactively force uninsurable pandemic coverage in business interruption insurance contracts are detrimental to policyholders, communities, insurers, and economic growth. A government-backed solution for struggling businesses in need of relief has never been more urgently needed, FAIR concluded.
ABOUT FAIR FAIR is an initiative of the Insurance Information Institute and its member companies whose mission is to ensure fairness for all customers and safeguard the industry’s longstanding role as a pillar of economic growth and stability.
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.”
As I’ve written previously, the question of whether business interruption provisions in commercial property insurance apply to COVID-19-related losses has become a major topic of debate during this pandemic. Suits have been filed seeking to establish that policyholders are entitled to coverage for such losses – even when losses associated with infectious disease are specifically excluded in the policy language.
This debate has been muddied in some circles by people confusing business interruption coverage with event cancellation insurance.
Citing the fact that the National Collegiate Athletic Association (NCAA) had its claim paid when it cancelled its annual men’s basketball tournament, as did the All England Lawn Tennis Association when it canceled its Wimbledon event, some wonder why many other businesses’ claims are being rejected.
While superficially similar, these claims couldn’t be more different from the business interruption cases currently being litigated.
Business Interruption: Physical Damage Required
Property insurance covers physical loss or damage to an insured’s property. The business interruption provisions of commercial property policies typically require a direct relationship between a physical loss or damage and the resulting lost income. The Insurance Services Office (ISO) form for commercial property coverage – the basis of many policies – specifies that any covered loss due to “necessary suspension” of operations must be caused by “direct physical loss of or damage to property at premises which are described in the Declarations.”
This is a critical point, as most business losses related to COVID-19 are due to employees and customers remaining absent, supply chain disruptions, and other factors – not to physical damage.
“A property policy may, for example, pay to repair the damage caused by a fire and may cover the loss of business during the reconstruction period,” writes Michael Menapace, a professor of insurance law at Quinnipiac University School of Law and a Triple-I Non-Resident Scholar. “But here’s the rub. Are the business interruptions related to COVID-19 caused by physical damage to property?”
Insurers say no, arguing that “damage to property” requires structural alteration like one would find when, say, a fire destroys the interior of a building or wind damages windows. The virus leaves no visible imprint. Even if remediation is needed – like cleaning mold from metal surfaces – insurers cite cases in which judges have ruled there’s no physical damage from mold if the mold can be cleaned off.
Add to this the fact that most policies exclude coverage for losses related to infectious diseases and it’s hard to imagine U.S. courts finding in favor of the plaintiffs – particularly when pandemic insurance existed well before COVID-19 and was largely ignored by business owners and risk managers.
Event Cancellation Insurance
COVID-19 has led to the cancellation of events from weddings to business conferences to the Tokyo Summer Olympics. Individuals and businesses buy event cancellation insurance against losses resulting from a cancellation due to circumstances beyond their control, including:
Weather or other natural events like hurricanes, tornadoes, and earthquakes, and
Human-caused events such as labor strikes and acts of terrorism.
If a policy is an “all-cause” or otherwise unlimited policy, it could cover cancellations due to COVID-19, particularly if purchased before 2020.
GlobalData said the event still faces a net loss. The total Wimbledon revenue loss is estimated at around £250 million (US$328 million).
The NCAA had a policy for its “March Madness” tournament that had to be cancelled. Its event cancellation policy covered just $270 million, even though the tournament generates more than $800 million a year. The organization reportedly was better prepared for a cancellation several years ago, when it built up savings of nearly $500 million to help mitigate the financial impact of a lost tournament.
“Then, in 2015, new leadership decided to spend more than $400 million of those savings without increasing the NCAA’s insurance coverage by following a questionable theory about the risk of saving that much money,” the Washington Post reports, citing former NCAA employees.
The availability of such coverage without exclusions for infectious disease may be limited or even more expensive in the wake of the current pandemic.
As states struggle to identify the best ways to reopen their economies, agencies, and schools from the coronavirus-related lockdown, legislatures have been moving forward legislation to protect them and the people they employ.
Virginia Approves Worker Health & Safety Standard
The Virginia Occupational Safety and Health (VOSH) – the state’s version of the federal Occupational Safety and Health Administration (OSHA) – will enforce a standard that mandates and, in some instances, exceeds guidance issued by the U.S. Centers for Disease Control and Prevention (CDC) and OSHA, PropertyCasualty360.com reports.
The standard protects employees who raise reasonable concerns about infection control to print, online, social, or other media. It covers most private employers in Virginia, as well as all state and local employees.
The standard also requires building and facility owners to report positive COVID-19 tests to employer tenants. It exempts private and public institutions of higher education with reopening plans certified by the State Council of Higher Education in Virginia (SCHEV) and public-school divisions that submit reopening plans to the Virginia Department of Education. No such exemptions are provided to private elementary and secondary schools.
In addition to CDC and OSHA guidelines, the standard requires employers to:
Provide flexible sick-leave policies, telework, and staggered shifts when feasible;
Provide handwashing stations and hand sanitizer when feasible;
Assess risk levels of employers and suppliers before entry;
Notify the Virginia Department of Health of positive COVID-19 tests;
Notify VOSH of three or more positive COVID-19 tests within a two-week period;
Assess hazard levels of all job tasks;
Provide COVID-19 training of all employees within 30 days (except for low-hazard places of employment);
Prepare infectious disease preparedness and response plans within 60 days;
Post or present agency-prepared COVID-19 information to all employees; and
Maintain air handling systems in accordance with manufacturers’ instructions and the American National Standards Institute (ANSI) and American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) standards.
Special Legislative Session for Tennessee Liability Bill
Weeks after Tennessee’s two legislative chambers failed to come to an agreement on legislation surrounding civil liability for coronavirus, Gov. Bill Lee called the state’s General Assembly to return next week for a special session, The Tennessean reports.
Lee issued an order asking members of the legislature to return to Nashville at 4 p.m. on Aug. 10 to take up the matter, which would extend broad immunity to businesses, schools, and other entities against COVID-19-related lawsuits.
The General Assembly also is expected to take up two other bills it failed to pass before adjourning in June. One would expand medical professionals’ ability to offer telehealth services and encourage insurers to cover those costs. The other would increase penalties for protesters camping and engaging in vandalism at the Capitol. A group of protesters has remained across the street from the Capitol for more than 50 days, resulting in the arrest of some for trespassing and writing messages in chalk.
Nevada Senators Advance Liability Shield Measure
State senators in Nevada, by an overwhelming majority, advanced legislation that would extend COVID-19 liability protections to businesses, nonprofits, schools, and governmental agencies and outlining several measures intended to protect hospitality workers, The Las Vegas Sun reports.
The legislation would extend COVID-19 liability protections to many entities that have “substantially complied with controlling health standards.” Provisions of the bill would sunset either upon the termination of the current state of emergency or in July 2023.
The measure wouldn’t extend to most private health care providers.
“Unease with the bill’s focus on the tourism and gaming industry crossed party lines,” the Sun writes. “Sen. Marcia Washington, D-North Las Vegas, said she was concerned why the bill singled out hospitality workers: ‘I’m here to represent, as far as I’m concerned, everybody, all the workers in the state of Nevada,’ Washington said.”
Marie Neisess, president of the Clark County Education Association, said the bill did nothing to help teachers going back into the classroom this year.
“Even with the best safety measures in place, educators and students will still be at risk,” Neisses said. Putting a bill in place that protects the employer rather than the employee is unacceptable.”
The bill now advances to the Senate floor for final action as lawmakers continue to meet in special session.
“Rebuttable Presumption” for Essential Workers Goes to N.J. Governor
New Jersey may become the next state to enact a law presuming that essential workers who acquire COVID-19 did so on the job, Business Insurance reports.
Lawmakers in the New Jersey Assembly and Senate on Thursday passed S.B. 2380 with a 42-27 vote in the Assembly and a 27-12 vote in the Senate. The bill, introduced in early May, would create a rebuttable presumption for essential workers seeking workers compensation for acquiring COVID-19 on the job during a declared state of emergency.
The bill identifies essential employees as those whose duties are considered essential during an emergency response and recovery operation; public or private sector employees whose duties are essential to the public’s health, safety, and welfare; emergency responders and workers at health-care facilities and those performing jobs that support a health-care facility, such as laundry, research, and hospital food service.
The bill moves to Gov. Phil Murphy’s desk. If signed into law, the legislation would take effect immediately and be retroactive to March 9. According to Business Insurance, a spokeswoman for Gov. Murphy declined to comment on whether he intended to sign the legislation.
In a July 29 earnings call Evan Greenberg, the CEO of Chubb, addressed the lawsuits filed by many businesses over business income (interruption) coverage during the COVID-19 pandemic. He stressed that even though business interruption (BI) policies do not cover a pandemic, they are a good value and work as intended.
“Standard BI policies, which are an addendum to a fire policy, require direct physical loss or damage to the property, for example, a fire or flood damages the property and prevents the business from operating while repairs are being made. COVID-19 does not cause physical loss or damage to a property, despite the trial bar’s efforts to influence some government officials in the wording of their civil public shutdown orders,” he said.
Greenberg reiterated the uninsurable nature of pandemics and the necessity for the federal government to take the lead in mitigating pandemic risks. To properly service all policyholders, Greenberg said, the insurance industry must not be distracted by attacks from the legal community.
The comments appear in their entirety below.
Remarks from Evan Greenberg, Chubb Second Quarter Earnings Call, July 29, 2020
I am going to say a few words about the business interruption issue that I know is on the minds of many. As you know, the insurance industry is under attack by the trial bar over business interruption claims. They represent many businesses which purchased BI coverage that does not provide cover for pandemic, and these customers are understandably disappointed and upset. Plaintiff attorneys are attempting to torture or reverse engineer insurance contract language to conjure up business interruption coverage that for the most part simply doesn’t exist.
Coverage for a pandemic was never contemplated in standard business interruption policies, and therefore no premiums were ever charged for that risk. In fact, state insurance regulators, who approve the policies, have been clear that this risk is not covered and that the industry could not cover the massive open-ended tail risk of a global pandemic because it threatens the industry’s solvency. Without the federal government playing a major role to cover the tail risk, pandemics are simply uninsurable on a broad basis.
Standard BI policies, which are an addendum to a fire policy, require direct physical loss or damage to the property, for example, a fire or flood damages the property and prevents the business from operating while repairs are being made. COVID-19 does not cause physical loss or damage to a property, despite the trial bar’s efforts to influence some government officials in the wording of their civil public shutdown orders.
Though it doesn’t cover pandemic, standard BI coverage provides good value for the money. We estimate the industry pays out about 70 cents in insurance claims for every business interruption protection dollar collected, with most of the remaining amount paid in commissions, premium taxes and other expenses. For Chubb, in addition to our normal losses this year, we will pay BI claims for policies that specifically covered certain pandemic-related shutdowns such as those for the entertainment industry.
We care deeply about properly supporting and servicing all of our policyholders, and I have particular sympathy for the millions of businesses that have suffered terribly during the pandemic-forced economic shutdowns. But it would be wrong – in fact, catastrophic and irresponsible – to pay the claims of those who didn’t have coverage, and in fact didn’t pay premiums for the coverage, by using funds that have been properly reserved for the legitimate claims of the vast majority of our P&C policyholders who number over 100 million globally.
To provide some context, in 2019, Chubb paid $24 billion on approximately four million property and casualty claims. Again, to pay billions of dollars in uncovered claims by raiding the reserves or capital needed to pay claims on other kinds of policies, such as auto and home, commercial insurance exposures, or respond to natural catastrophes such as hurricanes and wildfires, would be irresponsible to the vast majority of our policyholders and to our shareholders.
Beyond the business interruption challenges of the current COVID-19 crisis, the insurance industry has an important role to play in society and in the economy, and that includes fully participating in the development of a prospective future pandemic business interruption solution should crises arise. Earlier this month, Chubb released its Pandemic Business Interruption Program designed to mitigate the economic disruption and losses in the event of a future pandemic.
Our framework is not the first plan to be introduced. But the public-private partnership framework we developed has important differences from the other leading proposals. By sharing our ideas and approach, we hope to spark and influence a productive debate on a solution that will work for businesses of all sizes, taxpayers, our industry and the economy more broadly.
First and foremost, I believe the industry can and should take pandemic risk along with the government. This is a peril that can be covered to a greater degree than we do today as long as the tail exposure is covered by the government. It’s our job to figure out how to do that. We can do more than simply play an administrative role or we belittle ourselves and we’re less relevant than we can or should be.
The framework we announced has attributes that we believe will make for a successful program. It accounts for the different needs of small, medium and, to a modest degree, large businesses. Premiums for small business will be affordable and they will be paid quickly. Larger companies would pay a fair and risk-adjusted price to both the government and insurers for pandemic cover in a program built on free-market principles. The government gets paid for the use of its balance sheet – it’s not a handout to larger companies.
Our framework has incentives for broad participation by the industry. And by committing insurance industry capital and providing opportunity for increased risk-sharing over time as direct and secondary markets develop, the pandemic burden shouldered by the government will ultimately be lessened to a degree.
This is an important issue for our nation. We look forward to contributing to the dialogue as policymakers work to refine the most effective solution.