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NEW YORK, May 21, 2020---U.S. insurers serve as the nation’s financial first responders when natural disasters cause widespread property damage but insurers generally neither collect premiums for nor cover pandemic-caused losses, according to Sean Kevelighan, CEO, Insurance Information Institute (Triple-I).
“An event like a global pandemic is uninsurable,” Kevelighan stated today, at a virtual forum hosted by the U.S. House of Representatives’ Subcommittee on Innovation and Workplace Development. “Unlike a typical covered catastrophe, which is limited in terms of geography and time, pandemics have the potential to impact everywhere, all at once. Clearly, as we are seeing with COVID-19, the entire U.S. economy, as well as many others around the world, are being impacted all at once. As such, this type of magnitude requires government resources to step in and provide support. In our case, the U.S. federal government. Given the unpredictability and unimaginable potential for worldwide losses, insurance is simply unable to underwrite and cover a pandemic like COVID-19. This concept is made expressly clear in standard U.S. business interruption policies, which are reviewed and accepted by state insurance regulators.”
Business interruption policies are offered as an “add-on” to the general property policy to cover lost income and continuing expenses while the business is closed or being repaired because of the same circumstances—direct physical damage, Kevelighan added. Only about one-third of U.S. small businesses choose to have business interruption coverage, a 2015 survey found. Property business insurance, in general, is meant to cover various physical risks that would jeopardize, devastate, or force closing, such as a fire, tornado, or hurricane, he said.
“Any efforts to retroactively rewrite business interruption policies are not only unconstitutional (Article I), but would imperil the insurance industry’s ability to pay covered insurance claims filed by American homeowners, drivers, and injured workers,” Kevelighan continued, alluding to proposed federal and state legislation aimed at voiding exclusions found in nearly all business interruption policies.
“The current government shut-down orders do not trigger the vast majority of standard business interruption policies because those orders do not qualify as direct physical loss to property—a requirement under the policies. Moreover, most policies expressly exclude losses incurred due either to a virus or bacteria because pandemics interrupt nearly all businesses everywhere, all at the same time. The federal government is the only entity with the financial resources to help businesses during a widespread global pandemic,” Kevelighan said, adding later, “Make no mistake; retroactive business interruption payouts would bankrupt insurers. A recent Triple-I economic analysis determined this type of approach would decimate the industry’s financial resources in a matter of months, and at a time it needs those monies for major natural disasters that insurance policies cover, such as tornadoes, hurricanes, and wildfires.”
“The insurance industry is stepping up for Americans, with the likes of $10.5 billion in personal auto insurance premium relief, $220 million in charitable donations, and even more by keeping nearly two million Americans employed so insurance customers will be covered, and have their claims handled, when other disasters strike,” Kevelighan concluded, noting further information on these initiatives can be found at the Future of American Insurance & Reinsurance’s (FAIR) website.
Presentation: Insurance and COVID-19: Keeping Promises Made to Main Street
Statements: Triple-I Statements on Business Interruption Litigation Filings
Fact Sheet: The True Cost of Rewriting Business Income (Interruption) Policies
Triple-I Blog: Business Interruption Coverage: Policy Language Rules
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