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COVID-19 - Insurance company industry trends, Q2 2020

COVID-19 impacts

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By Kevin Kirby | October 5, 2020

Key concerns and recommendations for insurance companies based on the potential impact from COVID-19.

COVID-19: Business Interruption Claims Handling

Observation:

Many P&C insurers have been subject to suits alleging bad faith and/or wrongful denial of business interruption suits. The expectation among writers of ICPL coverage is that nearly all insurers with this exposure will be subject to one or more such claims.

Concern:

Leading insurers in the ICPL marketplace have begun to impose exclusionary language to ensure that their exposure to such claims against their insureds is capped at a single policy limit. Others have required that insurers make representations regarding the extent to which such claims were reported to prior policy periods – particularly non-incumbent insurers considering a new opportunity on the ICPL program.

Considerations:

While bad faith statutes vary by state, P&C insurers can expect to be challenged regarding the extent to which they have investigated each individual claim on its own merits.

Insurance companies should consult with their broker and claims advocate in evaluating any proposed exclusionary language and representations requested by insurers.


COVID-19: Investment Portfolio of Life & Health Insurers

Observation:

Despite improved equity markets that have seen the S&P 500 rebound to pre-COVID levels by late July, the Dow Jones US Life Insurer Index remains a significant laggard at -28% since January.

Rather than being tied to expected losses on the insurance side, much of the market sentiment is that life insurers have significant exposure on the investment side. Fitch Ratings cut its outlook on the life and health insurance industry to negative, citing lower interest rates and leveraged equity and corporate bond holdings as material challenges for the industry.

Concern:

With shares of public life and health insurers seeing tremendous volatility, the likelihood of shareholders bringing suit increases. D&O carriers have been extremely cautious in deploying capacity, often reducing limits.

Considerations:

Carriers are very wary of life insurers – especially those which are publicly-traded. Clients can expect to see their insurers revisit their total capacity on the D&O side and look to impose higher retentions.


COVID-19: Regulatory Environment

Observation:

State mandates, like cost-sharing waivers for healthcare expenses, may lead to significant additional costs for insurers. Several countries and states have explored legislation compelling insurers to reimburse policyholders for claims which are explicitly excluded.

S&P’s latest estimates are that the coronavirus could result in $30bn-$90bn in insured medical expenses in the US – the higher end of the range representing almost 100% of annual revenues for impacted insurers.

Concern:

As states are applying new mandates around policyholder notification, barring standard cost-sharing practices and potentially requiring insurers to pay uncovered claims, insurance company clients need to stay on top of these evolving requirements for all jurisdictions that they are exposed to.

Considerations:

Insurance companies must have robust processes in place to monitor and adhere to the rapidly changing regulatory landscape. The scope of regulatory coverage under policies remains a key priority to address any potential lapses or oversights.


COVID-19: Sales & Marketing

Observation:

The Chairman of the House Oversight and Reform Subcommittee on Economic and Consumer Policy has launched an investigation into travel insurance industry practices after carriers have indicated that coverage may not apply for coronavirus-related claims. Similar exposure may arise for other lines of coverage (ie healthcare and business interruption) where policyholders may have thought coverage would have applied due to advertising practices.

Concern:

With policies (event cancellation, healthcare, travel, etc) being tested more than ever before, the disclosures and representations made in the marketing of products – especially when it comes to individual and unsophisticated customers – may be scrutinized.

Considerations:

Affirmative coverage for sales & marketing practice remains of paramount importance. This coverage is not widely available among the limited group of carriers willing to write primary, so insurance companies may need to accept either sublimits or higher retentions.


COVID-19: Business Continuity Planning & Disclosures

Observation:

Business continuity planning is being stressed to the maximum and any perceived failures that negatively impact performance of insurance companies could lead to claims for failing to adequately prepare. Lack of accurate risk disclosures and perceived over-concentration to certain industries, classes of business and/or geographies could also lead to D&O claims.

Concern:

Shareholders may allege that stated risk factors do not address the significant challenges resulting from the coronavirus outbreak. For publicly-traded insurers, any negative impact upon share price as a result of failure to adequately function during quarantine could give rise to a D&O claim.

From an IT perspective, underwriters are scrutinizing the ability of insurance companies as well as any vital third party services providers (ie TPAs) to operate remotely without a negative impact on service and claims handling.

Considerations:

Clients should be prepared to speak to their carriers regarding the evolving risk landscape and how the company is updating its disclosures to reflect such.

Disclaimer

Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. COVID-19 is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.

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