Insuring against a Pandemic: Challenges and Solutions for Policyholders and... (EventID=111094)

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On Thursday, November 19, 2020, from 10:00 a.m. (ET) Subcommittee on Housing, Community Development and Insurance Chairman Clay and Ranking Member Stivers will host a virtual hearing entitled, "Insuring against a Pandemic: Challenges and Solutions for Policyholders and Insurers."

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This single-panel hearing will have the following witnesses:

• Ann Cantrell, Owner, Annie’s Blue Ribbon General Store, on behalf of the National Retail Federation

• John Doyle, President & Chief Executive Officer, Marsh and McLennan

• Brian Kuhlmann, Chief Corporate Counsel, Shelter Insurance, on behalf of APCIA and NAMIC

• Michelle Melendez McLaughlin, Chief Underwriting Officer, Chubb North America

• R.J. Lehmann, Executive Editor and Senior Fellow, International Center for Law and Economics


Insurance Coverage for Pandemic Related Losses
In response to the COVID-19 pandemic, state and local officials across the country issued stay at home orders, shutting down businesses for weeks and months at a time. These shutdowns have resulted in enormous losses for businesses across the country; the American Property and Casualty Insurance Association (APCIA) estimated that losses just for businesses with under 100 employees during the pandemic in the spring were as much as $431 billion per month.1 However, when businesses looked to insurers to cover these losses under business interruption policies, many were told that such losses were specifically excluded or otherwise not covered by those policies. A string of lawsuits have been filed by businesses challenging claim denials.

There have been far fewer questions as to whether event cancellation policies would be paying out due to pandemic related cancellations, which include major sporting events, concerts, festivals, and conferences. For example, the estimated cost to insurers of cancelling the 2020 Summer Olympic Games in Tokyo is $2 billion, though postponement rather than cancellation will likely prevent the worst-case scenario for insurers with hundreds of millions of dollars in exposure. Another area of insurance that has encountered significant uncertainty in the context of a pandemic is workers compensation claims, with states taking a wide variety of actions to extend workers compensation protections to first responders, health workers, and in some cases, essential employees like grocery store workers. Other aspects of the insurance industry have seen very different outcomes during the pandemic, however. After stay-at-home orders caused a steep decline in driving in March and April, a significant decline in auto accidents and insurance claims led many auto insurers to issue refunds and credits to policyholders.

The Role of the Federal Government
Consumers and businesses purchase insurance to protect against the risk of loss. In 1945, Congress passed the McCarran-Ferguson Act, which exempted the industry from federal regulation. As a result, insurance is largely regulated at the state level. The Dodd-Frank Wall Street Reform and Consumer Protection Act established the Federal Insurance Office (FIO) within the Department of the Treasury, which has the authority to “monitor the extent to which traditionally underserved communities and consumers have access to affordable non-health insurance products,” but does not have authority to issue regulations or preempt state laws beyond those that are not in compliance with international standards. The National Association of Insurance Commissioners (NAIC) helps to coordinate regulation across states. In May, the NAIC sought to inform state insurance regulators’ response to the COVID-19 pandemic by requesting information from insurers about their exposure to business interruption coverage.

Business Interruption Coverage
Most businesses carry commercial property insurance, which protects assets against physical risk such as fires or other damaging events.9 Some businesses choose to supplement that coverage with business interruption or business income (BI) coverage, which is aimed at covering sustained profit losses from a forced closure. Although comprehensive data is unavailable, the NAIC estimates that 30-40% of businesses carry some form of business interruption coverage, and news reports indicate that many of those policies contain clauses specifically exempting “viral pandemics.” These clauses began appearing in policies following the SARS outbreak in 2002,13 and in 2006, the Insurance Services Office (ISO) issued a circular stipulating that commercial property policies should offer “no coverage for loss or damage caused by or resulting from any virus,..."


Hearing page: https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=406957