As has been widely reported, insurance companies have been inundated with claims arising from the new coronavirus and are locked in controversial coverage disputes over the extent of coverage that gives such claims under various policies. Courts have begun issuing decisions both for and against policyholders trying to recover for COVID-19-related losses, and the legal battles that resolve these issues are likely to take months or even years to resolve.
However, the insurance industry's attempts to mitigate the risk of paying these covered claims have been rapid and difficult. According to a report for the second quarter of 2020 issued by The Council of Insurance Agents & Brokers, all respondents surveyed reported small to significant increases in premiums for all account sizes and all industries. The most significant increases were not in commercial property policies, which provide coverage for business interruptions, but rather for umbrella and board members, which had an increase of 20 percent and 1
A nearly 20 percent increase in D&O premiums can cost a company tens of thousands, if not millions, in additional insurance costs each year. As we previously reported, the latest price increase comes at a time when companies in virtually all sectors face a real D&O risk for COVID-19-related disputes that companies and their board members, executives and other executives and employees have violated their duties. or violated securities laws in connection with COVID-19 exposures. These lawsuits, many of which have already been initiated, may arise from government investigations into the company's response to COVID-19; securities class claims arising from COVID-19 related disclosure obligations and management issues; claims from creditors in insolvency or bankruptcy; management claims related to employee benefit plans; or cyber-related claims by shareholders for alleged failures to comply with cybersecurity standards or violations of reporting laws in the event of a security incident or fraud committed by hackers exploiting COVID-19-related vulnerabilities.
While companies face rising costs for smaller insurance companies reportedly trying to exploit the pandemic to increase profits long after the coronavirus has been curtailed. We have previously realized that many US insurance companies actually report higher levels of net income during the pandemic. However, recent reports have highlighted more concerted efforts by insurers to demand private investment in the expectation that the insurance industry will not only avoid crippling losses but will be able to rely on the pandemic to initiate long-term, significant premium increases to increase profits.  The behind-the-scenes announcement of this fundraiser tells a completely different story from reports of possible hundreds of billions of dollars in payments and potential insolvency if insurers cover COVID-19-related losses as the thousands of companies shut down by the pandemic. Coronavirus fallout is far from certain, but at least companies looking to acquire or renew D&O insurance (or any other coverage) should expect resistance, both in the form of significant premium increases and more restrictive coverage than in previous years. over. Retaining experienced professionals to market the risk and assess the potential impact of changing policy conditions can help reduce the risk and understand the extent of coverage during these uncertain times.