In a revenue interview on July 29, Evan Greenberg, CEO of Chubb, dealt with a lawsuit filed by many companies to cover business income (interruption) during the COVID-19 pandemic. He stressed that although the Business Disruption Policy (BI) does not cover a pandemic, they are a good value and work as intended.
“Standard BI policies, which are a supplement to a fire policy, require direct physical loss or damage to the property, for example, fire or flood damage the property and prevent the operation from functioning while repairs are being carried out. "COVID-19 does not cause physical loss or damage to property, despite the trial's efforts to influence certain government officials in the wording of their civilian public suspension order," he said.
Greenberg reiterated the uninsured nature of pandemics and the need for the federal government to take the lead in mitigating pandemic risks. In order to properly serve all policyholders, Greenberg said, the insurance industry does not have to be distracted by attacks from the legal community.
The comments are shown in full below.
Remarks by Evan Greenberg, Chubb Second Quarter Earnings Call, July 29, 2020
I will say a few words on the business break issue that I know are on many. As you know, the insurance industry is attacked by the lawsuit for interruption of complaints. They represent many companies that bought BI coverage that does not provide coverage for pandemics, and these customers are understandably disappointed and upset. Lawyers from the appellant try to torture or reverse engineer insurance contracts to induce coverage of business interruptions that for the most part simply do not exist.
Coverage for a pandemic is never considered in standard policy interruption policies, and therefore no premiums were charged for that risk. In fact, the state insurance rules, which approve the insurances, have been clear that this risk is not covered and that the industry could not cover the large open tail risk of a global pandemic because it threatens the industry's solvency. Without the federal government playing an important role in covering the tail risk, pandemics are simply uninsured on a broad basis.
Standard BI policies, which are a supplement to a fire policy, require immediate physical loss or damage to the property, for example, if fire or flood damages the property and prevents the operation from functioning while repairs are being carried out. COVID-19 does not cause physical loss or damage to property, despite the trial's efforts to influence certain government officials in the wording of their civilian public suspension order.
Although it does not cover pandemics, the BI standard coverage provides good value for money. We estimate that the industry pays out about 70 cents in insurance claims for every business breakage protection dollars collected, with most of the remaining amount being paid in commissions, premium taxes and other expenses. For Chubb, in addition to our normal losses this year, we will pay BI claims for policies that specifically covered certain pandemic-related shutdowns, e.g. for the entertainment industry.
We are deeply committed to supporting and servicing all our policyholders properly, and I have particular sympathy for the millions of companies that have suffered terribly during the pandemic-driven economic closures. But it would be wrong – in fact catastrophic and irresponsible – to pay the claims of those who did not have cover, and in fact did not pay premiums for the cover, by using funds reserved for the legitimate claims of the vast majority of our P & C-policyholders who have over 100 million globally.
To give some context, Chubb paid $ 24 billion in 2019 for about four million claims on property and damages. Again, it would be irresponsible to pay billions of dollars in nasty claims by putting the reserve or capital needed to pay claims on other types of insurance, such as car and home, commercial exposures or responding to natural disasters such as hurricanes and wildfires. to the vast majority of our policyholders and to our shareholders.
In addition to the challenges of business disruption in the current COVID-19 crisis, the insurance industry has an important role to play in society and the economy, and it includes full participation in the development of a future future solution to pandemic business disruption should crises arise. Earlier this month, Chubb released its Pandemic Business Interruption program to reduce the economic disruption and losses in the event of a future pandemic.
Our framework is not the first plan introduced. But the public-private partnership framework we developed has important differences from the other leading proposals. By sharing our ideas and approaches, we hope to spark and influence a productive debate on a solution that will work for companies of all sizes, taxpayers, our industry and the wider economy.
First of all, I believe that the industry can and should take pandemic risk together with the government. This is a danger that can be covered to a greater extent than we do today as long as the tail exposure is covered by the government. It is our job to find out how we do it. We can do more than just play an administrative role or we diminish ourselves and we are less relevant than we can or should be.
The framework we announced has attributes that we believe will make for a successful program. It reports the different needs of small, medium and moderately large companies. Premiums for small businesses will be affordable and they will be paid quickly. Larger companies would pay a fair and risk-adjusted price to both the government and the insurance companies for pandemic coverage in a program based on free market principles. The government is paid for the use of its balance sheet – it is not a dividend to larger companies.
Our framework has incentives for the broad participation of the industry. And by committing capital in the insurance industry and providing the opportunity for increased risk sharing over time as direct and secondary markets develop, the pandemic burden imposed by the government will eventually be reduced to some degree.
This is an important issue for our nation. We look forward to contributing to the dialogue as decision makers work to refine the most effective solution.