Back in March and April, I gave two webinars on COVID-19 for the Academy of Insurance.
If you have not had a chance to take them, click here to get the Academy of Insurance COVID-19
One of the topics we touched on more than once was legislative action to force insurance companies to cover COVID-19- related income losses.
Whether you saw our classes or not, you have probably read at least one story about a business income (or business interruption) that was filed because an insurance company rejected a claim for business income losses related to COVID-19 suspensions. You really do not need my opinion on that.
In addition to reminding you that corporate revenue losses due to mandate suspensions from COVID-1
What is the solution? That question suggests that there is a problem. This means that the bigger question is what is the problem that needs to be solved?
Is the problem that insurance companies do not pay for COVID-19 companies' income losses? No. That's not the problem. Claims are denied because companies read the policy correctly in this case.
Is the problem that some insurances exclude coverage for property losses related to viruses? No. That's not the problem. If the policy is written by an approved carrier, the state had to approve all forms before they were issued. If the insurance is written by a surplus company, it is another matter entirely and the insured should have become aware by their agent that they have a surplus line policy and this means that the insurance should be reviewed in detail.
Is the problem that companies were closed due to no fault of their own and that they had a serious loss of income because of it and now they want someone to cover that loss? Yes. That's the problem. Small businesses have been hit hard by the decisions of others while we have been dealing with this virus.
Whether the activity was closed due to civic duty and the desire to help "flatten the curve" or would have been open, it would not have been a state order to close does not matter. All the companies that had to shut down lost money and time with their customers. The local spare parts store in my city still can not get many of the simple parts that their customers need because their suppliers are still increasing production from when they were shut down.
Does any of this problem make an insurance problem? ? No. It is still not an insurance problem for all the reasons already stated. The problem we have is that customers who do not understand their insurance still think it is an insurance problem. They do not understand their insurance policies as their insurance staff do and whether their agent explains their insurance policy to them or not, the fact remains that they will not be convinced that it is not an insurance problem. At the time of writing, 10 states, the District of Columbia and the United States Congress have enacted legislation that in one form or another would mandate that corporate income insurance cover losses due to COVID-19 suspensions. All of these laws have one thing in common, making coverage for a pandemic a mandatory offer by insurance companies or forcing coverage on existing insurance policies.
Take it from someone who lives in a state where property insurance is changed by state legislators almost every year. This is a terrible idea. Legislators should avoid forcing insurance coverage. They do not know what they are doing.
The bills seem to leave more questions than answered.
After reading several of these bills, I feel confident that I am right in at least one statement. Legislators have no idea how insurance works. Take, for example, New Jersey Assembly Bill 3844. Let's look at some laws.
Notwithstanding the provisions of any other law, … all insurance policies insuring against loss or damage to property, including loss of use and occupancy and business interruptions in force in that State at the date of entry into force of this document shall be construed to include among the risks covered under this policy, coverage for business interruptions due to global virus transmission or pandemic, …
I understand that the legislator demands that pandemic is now a covered cause of loss. That's great, but what if there was no actual damage? You may remember that much of the problem with these claims is that no actual physical damage has occurred in many of the sites in question. Therefore, this bill (and those like it) addresses only one coverage issue among the other issues involved.
This bill also contains a provision that allows companies that pay claims based on the suspensions to apply to the state for reimbursement of these funds. This sounds good, but where does the money come from? That is a good question.
That money comes from the state initially, then the state will try to get these funds back from the insurers based on their written premiums. Where do you think the money comes from? Every time I see an insurer receive and assess from the state, the assessment is pushed down to the individual policyholder. When a customer asks if it is, the answer is generally the same. It's a government fee.
Although these questions may seem easy to answer, there are more questions.
- Which claims will be eligible for repayment by the state?
- How long does it take to receive payment?
- Are these payments guaranteed, or is there a process that the state will use to qualify payments?
- When will the system be set up by the state to handle these requests?
The bills seem to have been introduced as noise, not
Since these bills were handed over to their respective state legislators, it is possible that the press was warned, that social media buzzed and that the people of those states were told the bills were pending. People began to hear that their government was planning to come to their rescue all because of efforts from senator, representative, parishioner or other title Somebody.
In fact, these bills seem quite popular. The New Jersey bill was sponsored by three parishioners and co-sponsored by another 13. One of the bills in the US House has ten co-sponsors. No matter how many people have added their names to the list of people who support these bills, they are out there, on public records. But what has been done since then?
We recall that states declared a state of emergency as early as March 2020 and many of these bills were introduced in March 2020. Some of them even used language to indicate that this is a matter of great need. which should be addressed at the right speed. So what has happened to these bills? The list below shows several of the bills and their status at the time of writing according to the legislators' websites.
- NJ A3844 – Introduced to the New Jersey Assembly on March 16, 2020. Approved Homeland Security Committee. No action has been taken since.
- Ohio HB 589 – Introduced in the House on March 24, 2020. Referred to the Insurance Committee on May 5, 2020. First hearing on June 9, 2020. No action has been taken since.
- Massachusetts SD 2888 – Referred to the Rules Committee on April 6, 2020. Referred to the Financial Services Committee on April 21, 2020. No action has been taken since.
- NY A10226 – Introduced and referred to insurance taken out on 27 March 2020. Amended and referred to committee on 8 April 2020. Amended and referred to committee on 29 April 2020. No action taken since then.
- Pennsylvania HB 2372 – Referred to the Insurance Committee on April 3, 2020. No action has been taken since.
- HR 6494 – Presented at US House and referred to the Financial Services Committee on April 14, 2020. No action has been taken since. (2% chance of being adopted according to govtrack.us)
- HR 7412 – Presented in U.S. Pat. House and was referred to the Financial Services Committee on June 29, 2020. No action has been taken since. (1% chance of being accepted according to govtrack.us)
- CA AB 685 & CA SB 1159 – Introduced February 20, 2020. Signed by law on September 17, 2020.
Only two of these bills have passed the house as they were introduced in. Most have not taken any action in months. It can be said that the legislative process is slow and cumbersome. That's true, but they can make the process easier. We have seen it in our time when something becomes critically important, they can speed up the process.
I have two theories as to why these bills have not been moving for several months. I dismiss the idea that there are more important issues in all these cases because they all claim that this crisis is an emergency. There may be more important issues, but we are hesitant.
It is possible that someone met the legislators and told them that what they are planning has little or no chance to pass and if it does it will likely face serious opposition since many of them change a previously agreed agreement and that is not good precedent even if the contract is an insurance.
It is also possible that they were less interested in disposing of the bills than they were visible in presenting the bill. It could be about the show because it is an election year for at least some of these people.
We return to the original problem. It's not an insurance problem because these losses, although terrible, do not break the existing insurance barriers that were put in place long before most of us had heard the words Wuhan, Coronavirus or Pandemic.
That's a problem. It's just not an insurance problem.