This week, the general industry HFTP Hangout took a close look at the state of the U.S. insurance industry and how coverage operates in a pandemic. With nearly all hospitality businesses going on lock-down for several weeks or months and hemorrhaging revenue in that interim, many are now looking to their insurance coverage to seek recompense.
Mike Callaway and Nick Callaway of CBIZ Weekes & Callaway, Inc. moderated the session to shed light on the current state of the insurance industry, as well as important factors to consider during this time to protect your customers and employees.
The State of the Insurance Industry
Before COVID-19 had even struck the world, the property management insurance market in the United States was already becoming a “hard” market, with rates increasing and new coverage becoming more limited. This was a result of catastrophic losses over the past few years. In 2018, the market was at its softest, with low rates. It was followed by a huge loss year in 2019; there were 14 individual $14 billion disasters including Hurricane Dorian and the California wildfires.
This means that the market experienced huge losses at a time of low rates and were still trying to adjust for that when Covid-19 spread across the globe and largely shut down the hospitality industry. The insurance carriers reinvest the premiums they collect, so when the reserves collapsed, they experienced investment-based losses and reduced revenues, leaving them less money to pay out claims. This led to further market contraction and a freeze on new business.
Carriers are, for the most part, not interested in writing new accounts — they are concerned about over-expanding their capacity. They will continue to write existing business at higher rates. There are also new underwriting requirements and exclusions, as well as a suspension of cancellations and non-renewals.
The question on everyone’s mind: Is Covid-19 covered?
The virus is excluded in nearly every policy. The carriers simply did not write policies intended for pandemics, and they did not collect enough premiums to take on this amount of risk. As claims have been reported, they have also been denied.
Is there coverage for business interruption?
The real question: Is the virus considered physical and, therefore, a loss? Thus far, this is undetermined. An argument for the affirmative would suggest that the requirement to sanitize your property proves the physical presence of the virus and should trigger payout for the claim.
There is a push to enact state legislation to force payouts for these business interruption claims. It will ultimately be up to the state courts to determine whether these claims should be covered. The potential damage to the industry could surpass anything it has experienced to date. Payout for these claims could lead to a potential bankruptcy of insurance companies, a collapse of the industry, and possibly a subsequent bailout.
Can I purchase coverage for future pandemics?
The U.S. government may consider setting up a federal backstop to expand coverage that would insure the risk of future pandemics, much like they did with terrorism coverage for businesses following the 9/11 attacks. This coverage would be in the very early stages of planning.
Insurance agencies may put together their own policies, but they would not be backdated to cover the current situation.
Business Reopening Guidance
Reopening your business should be done with an abundance of caution. There are a few important steps you should take to help protect your employees and customers at this time:
- Conduct a risk assessment of your operations. Identify the largest hazards and exposures. Evaluate your employee’s prior duties and responsibilities and revise them to limit contact with customers, other staff and high touchpoints.
- Take a phased approach. Examples of this include reducing business hours or closing off certain spaces/amenities to limit traffic or crowds.
- Implement CDC guidelines for proper safety controls. This may include requiring face masks for employees, encouraging frequent handwashing and setting up hand sanitizing stations for public use.
- Retrain all employees on new sanitation practices. Make sure employees understand what they need to do to protect themselves, each other and your customers.
There is still so much uncertainty surrounding insurance coverage in the time of Covid-19. In the end, it will be up to the states to decide what will be paid out — whether it be business interruption, workers’ compensation, civil authority or any other inclusions.
Ultimately, it will be interesting to see what the future holds. A year ago, the idea of pandemic coverage may have seemed absurd — tomorrow, it may be necessary.
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