Insurance and the COVID-19 pandemic

Apr 17, 2020
Helping businesses and governments understand what’s covered, what’s not, and how COVID-19 will affect the future of the insurance industry.

The novel coronavirus is impacting us all in dramatic ways. Individuals, families, companies, governments, and industries around the world are reeling from the effects of COVID-19. The insurance industry is no exception. As insured businesses experience loss of revenue, they are looking to their insurance policies for help. How is the industry responding?

While most traditional insurance policies exclude coverage for viruses and disease- or illness-causing agents, coverage may exist for insureds through their employment practice liability and general liability policies. There has already been a rise in claims and the courts are poised to weigh in on what’s covered and what’s not. If the insurance industry is forced to cover business interruption claims specific to COVID-19, the short- and long-term consequences will be significant.

In this podcast, two insurance and risk experts weigh in on the impact of COVID-19 on the insurance industry. Nancy Sylvester, area executive vice president and public sector national director of federal disaster recovery for Arthur J. Gallagher, and Susan West, vice president of risk management for ICF, discuss insurance and how it affects our clients at the state, federal, local, and private sector levels with regards to COVID-19. Moderated by Marko Bourne, former director of policy at FEMA, the conversation covers:

  • How the insurance industry has responded to COVID-19 so far—and how it will likely change in the future as a result of this crisis.
  • Why most insurance policies don’t cover business income and expenses related to COVID-19, and some potential avenues for coverage that insureds can explore as they navigate the situation.
  • How state departments of insurance are protecting their constituents by managing carriers’ responses to the coronavirus for both new business and renewals—and where you should turn to find out how your state can help you.
  • The role of worker’s compensation insurance in this pandemic and what employers need to be aware of as the crisis unfolds.
  • How effective communication between risk managers and underwriters can uncover perks for businesses.

Full transcript below:

Marko: Hello, and welcome to ICF’s Insights podcast on insurance for the COVID-19 epidemic. We appreciate all of you joining us for all of our podcasts as we're trying to provide as much timely and critical information to our government clients, our private sector friends and clients, and the public about how we're dealing as a nation with COVID-19. And at the same time, how it affects the programs that our state, local, [and] federal governments use and provide--and how the private sector is looking at this issue as well. COVID-19 has created a number of challenges that ICF is looking at, along with many of our teaming partners, and how to address the funding that's available to do emergency protective measures--the actions that all of us can take on any given day to address the current situation--but also [to] think about planning for the future. One of the major issues that we address in the course of this--and particularly this particular podcast--is about insurance. Insurance is something that we all have or understand. But how well do we understand it in the context of a pandemic? How well do we, as a private sector entity or a governmental entity, understand the limitations of insurance, the value of it, and how to address the challenges, moving forward, that COVID-19 and pandemics in general are affecting the industry and affecting how we look at insurance across the board.

We have two experts on insurance with us and risk. One of them from one of our great friends and partner companies, Arthur J. Gallagher, is Nancy Sylvester. Nancy Sylvester is [an] executive vice president at Gallagher. And also the national director of federal disaster recovery in Gallagher's public sector practice. She has a number of designations, has been an award-winning broker by Risk and Insurance, has leadership awards from Liberty Mutual, and has been named a Woman to Watch by "Business Insurance," as well as others. She's an expert on disaster insurance and speaks regularly at national and state conferences on the topics of risk management, FEMA, public private partnerships, insurance, and leadership. And we welcome Nancy here today.

We also have with us Susan West from ICF. Susan brings more than 30 years of risk management insurance expertise to ICFs disaster management team and is currently serving as our insurance lead at ICF for disaster recovery initiatives in Puerto Rico. And also has been deeply involved in the insurance industry and risk management with the state of Louisiana as a state risk manager and [as a] risk administrator, has led the state's recovery efforts from multiple disasters as an expert on disaster regulations and insurance policies, especially as they relate to FEMA regulations and federal guidelines. She's a leader and has served as the executive officer of a large insurance program, and is the author of a white paper, "Insurance and FEMA: How to get and keep federal funding." And we welcome Susan as well. Thank you both of you for joining us today. We appreciate it. Insurance certainly is, first and foremost, on a lot of folk's minds as we get further into the reaction, the response, and--ultimately--the recovery from COVID-19. Nancy, from your perspective, what are the greatest concerns right now that you have and you're hearing from your clients with regards to this?

Confirm what’s covered

Nancy: You know, from our clients, it's pretty straightforward, at least in my world. First and foremost, my clients are concerned about their employees; there are so many issues to consider. First, most importantly, the health and safety of their employees and their families is paramount to the communities that I work with. Business continuity, as we're all seeing, is such an issue. Not only concerning the ongoing life of the business or the government, but challenges in particular with keeping employees on payroll with reduced or even no money coming in. As you already said, I do a great deal of public sector, non-profit university, affordable housing-type business. And so for those, they rely on taxes, tuitions, that sort of thing. Local and state taxes are down so significantly, schools are temporary closed, tuition for those universities is lost. And sometimes when a university loses tuition, it loses it not only for the current year, but going forward, because potentially they may also lose those students. Employees are being furloughed, which is just complicated. And at the same time, though, they have to keep doing their jobs, critical operations still have to continue. Fire, police, utilities, online learning, on and on and on. It's just a very difficult environment, everybody is just trying to get through it.

Marko: It certainly is a tremendous factor, obviously, both in the short term and the long term. You know, from a business perspective, I can see the loss of income and loss of revenue as being significant, not just to the employment of the folks but also the long-term viability of the businesses. For governments, it's about delayed taxes being collected, or in some cases perhaps far less than normally budgeted. Susan, could you explain why most insurance policies, especially when it comes to the private sector, don't cover business income and expenses related to COVID-19 or things like pandemics?

Susan: That's a great question, Marko. And first of all, I want to say it's important to be aware that policy terms and conditions are not all alike. There's just not one size that fits all. So, it's a good idea for you to talk with your insurance carrier and broker just to make sure you are making informed decisions about your specific coverage. With that being said, for business interruption and business income coverage to be triggered, there needs to be physical loss or damage to the insured premises, and it needs to be caused by a covered peril. That same premise holds true for coverage extensions like contingent business income, ingress or egress, and even civil authority claims, which all require physical loss by a covered peril. Keep in mind that most traditional policies exclude coverage for viruses and disease or illness causing agents.

Also, many traditional policies may not respond to claims resulting from a slow down or a shutdown due to the spread of a pandemic. This coverage isn't common for many reasons. But typically, underwriters don't evaluate model or even rate this type of coverage. So, we're in an ever-evolving situation. And we'll just have to continue to monitor the insurance industry's reaction, because there will be new legislation introduced, we've already seen that happen. And just to go on a little bit further, the issue of coverage for business income or loss of revenue is really driving the COVID-19 debate in our industry. Business income claims fall under property coverage. And this coverage is dependent upon physical damage to a building, which generally would make the building unusable. With a pandemic, there's just typically no physical damage to a building. We have already seen litigation filed against insurance carriers. And it'll be interesting to see how these claims are addressed by our courts. If the industry is forced by our courts to cover business interruption claims specific to COVID-19, the impact to the insurance industry is going to be intense and probably long lasting.

And then one additional point I think we need to talk about is that coverage may exist for insurance through their employment practice liability policy as well as general liability coverage. Claims or litigation brought on by employees alleging wrongful employment actions may have some coverage, so check with your insurance company on that. Also, commercial general liability policies provide coverage for injury to persons other than your own employees and damage to property of a third party for which you may be legally responsible. So, liability for such injury or damage specific to the coronavirus will arise chiefly out of your failure to protect others and their property against exposure to infection. So other claims could emerge even based on the fear of contamination where there's no actual injury or damage. So, we're going to have to watch how the insurance industry responds. There very well may be legislation which takes place that's going to force insurance companies to do or react in certain ways.

Know which pre-pandemic programs still apply (and which don’t)

Marko: Nancy, thank you. I know one of the upcoming podcasts we're going to be doing here down the road is really going to take a look at risk management. And from both a governmental perspective and a private sector perspective on how our businesses, etc., should be looking at future risk and how to make mitigate against that and how to manage those risks. And certainly, raising the issues of concerns over whether the contamination still exists or not, what actions are taken to protect employees, whether they be governmental employees or private sector employees is something we're definitely going to be taking a deeper look at in the future. So, you raise a great point there. Nancy, question for you. And really, it goes around to the industry itself. The insurance industry has been through many challenges throughout its history. We know back in the 1960s, catastrophic flood loss led to the creation of the National Flood Insurance Program. And in this case, how is the industry looking at COVID-19 perhaps differently than the way they've looked at other pandemics or other perils in the past?

Nancy: Yeah, what you're saying is, it's a new day and I agree with that. The industry is responding in multiple ways. It's across the board. For example, the National Flood Insurance Program, most people refer to that as NFIP, has extended the grace period to renew flood insurance policies from their normal usual grace period of 30 days to 120 days. This extension applies to NFIP policies with an expiration date between February 13th and June 15th, 2020. And then states, states are stepping up and trying to do their part. Some state departments of insurance, such as Louisiana for example, are protecting its constituents by managing carrier's responses to the virus for both new business and renewals. For example, rule #40 in Louisiana sets forth parameters that carriers, all kind of carriers--benefits, property and casualty, and such--must follow such as they are not allowing changes to be made in terms of pricing for as long as the rule is in effect. At this point in time that rule is set to expire May 12th. I assume there's consideration given to extending that. So, anybody who's got a renewal falling in that time period, like right now, they have the Department of Insurance in their corner, and their carriers are required to follow this rule 40 in terms of pricing.

So, it’s working well, and I think it was a great thing for the insurance commissioner to do by the way. And then, going forward, though, we're seeing--possibly with the exception of policies that cover health care providers such as hospitals--specific communicable disease exclusions being added to coverage documents. Please understand that carriers do not see this exclusion as new. I believe it's an attempt for them to further clarify their intention that COVID-19 is just not eligible for coverage. And then, recently, we're seeing that NCCI, the national workers’ compensation firm is saying that they will not audit payroll paid for people who are working from home. So, potentially, that will be a nice help at the end of workers’ comp renewals when everybody gets their payroll audit. I think our clients for the most part will see some relief to that. So, that news is just coming out, and we're watching that closely. That would be a great thing for clients.

And last, speaking as a broker, specifically from the Gallagher point of view, we are actively trying to assist our clients. We're hosting FEMA webinars. We're providing information about CAT B under FEMA, hand over foot. We are boots on the ground in terms of risk management support; our claims advocacy teams are stepping up. Work somehow went from long, five and six days a week--it feels like it's forever now--seven days a week, it doesn't stop. We are seeing a bit of a tick, at least in my book of business in cyber losses. So, we are stepping up trying to get the word out for people to be cautious to be careful. You know, our clients are on the frontlines doing very important work. It's these clients are going to get us through this. And, you know, it's just our job to support them however we can, however we can do.

Find the right resources on regulation

Marko: Thank you, Nancy, you raised a couple of really excellent points there and one of which is certainly as we are self-isolating and distancing, we are reliant on cyber technology to help communicate and to provide information and to, quite frankly, connect with friends and loved ones. Never mind our work connections, and those certainly have seen not only an uptick in use but an uptick in malicious attempts to scam--and certainly to provide--cyber challenges that are malicious in nature. And that's an area that really is important and likely the subject of a future podcast, and so I appreciate you bringing that up. One kind of just sidebar that I'd just like you to quickly address before I move on to Susan with the next question is, insurance, largely, while there certainly are federal guidelines for it. It's my understanding that insurance is largely regulated or managed by state insurance commissions and departments, where's the best place for folks, other than their carrier, certainly, to get information about what the rules are and what rules are being relaxed and which ones are important for folks to know about how their state's managing?

Nancy: From a national level, that's called NAIC. The National Association of Insurance Commissioners is a wealth of information. But then at a state level, each state has their own department of insurance. They have their own insurance commissioner. And I have found in every single state when you reach out to the state insurance commissioner's office, they are helpful. These are nice people trying to serve their state. I would start at a state level and then if someone needed additional information, NAIC is easy to get to as well.

Marko: And I think most people don't realize that insurance is heavily impacted by the states in which the insurance is provided, and the insurance commissioners play such an important role in that.


Scope out local workers’ comp legislation

Marko: Susan, there's a lot of discussion regarding workers’ comp claims for employees affected by COVID-19. Are those claims payable through workers’ compensation? And how are the states dealing with that?

Susan: That's a good question, Marko. So, this issue has been looming over the industry ever since COVID-19 raised its head. Workers’ Compensation Law, as you mentioned, is unique in every state. However, most state laws require a causal connection between that injury or that illness and that person's line of work. There are many cases in which an individual can prove that, more likely than not, the disease that they acquired was acquired at work. We've seen that in the past with asbestos claims and mesothelioma claims. So, there are some work environments such as health care which have a greater chance of exposure to COVID-19. And the courts will likely have to determine if that illness or disease arose out of their scope of work that they're currently doing. Some states--South Carolina, Minnesota, Missouri, Washington-- have introduced presumptive workers’ compensation legislative supportive of health care workers and first responders who are on the frontlines caring for infected patients, and who subsequently develop the virus. So they are determining, basically, in those states that if you are a health care worker or a first responder and you develop COVID-19, that it is compensable in your state, and I'm sure that other states will likely follow with similar legislation.

Marko: That's great to know, because I think, certainly, we've seen similar things like that happen in the past, especially around those that, say, responded to the World Trade Center after 911 the police and fire community etc., certainly had a number of questions regarding the ability or what they contracted later as a result of that response. And certainly, this is following, in many respects, a similar pattern for the health care community.

Susan: Absolutely.

Prepare for a future with higher premiums (and more perks)

Marko: How will COVID-19 affect the future of insurance industry, Susan, put it on your crystal ball for a second and kind of think in terms of where do you see this going?

Susan: Yeah. Well, as we sit here today, we're in challenging times. I mean, the property and [inaudible 00:19:16] market began hardening well before the pandemic. So, we have seen some carriers clamp down on their terms and conditions. Nancy mentioned earlier that insurance companies are rewriting their exclusionary language to be ever so clear that viruses are not covered. In fact, one large property carrier recently announced that they're going to be reducing their communicable disease sub-limit to $1,000, which is hardly anything, as I'm sure you're aware. And some carriers are offering supplemental COVID-19 applications just as part of their underwriting process and are tightening exclusionary language as we said. So, as a result, it is likely we're going to see higher premiums, broader coverage imposed by legislation, new insurance policy forms will be developed. There will be a significant rise in the number of claims, which will bring an increased drain on our judicial system. So, the coronavirus, unfortunately, is going to create a new norm for the insurance industry. And only time is going to reveal its total impact.

Marko: Yeah, that's certainly something that I think is definitely worth noting and watching as the weeks, and months, and years move on. Nancy, a question's been asked, or that hasn't been asked really, is what can risk managers do to influence the outcomes coming down the road, their renewal outcomes? How they should be looking at dealing with these risks moving forward?

To me, that's an easy question. And there are two categories here, I think, of relationships between risk managers and their carrier partners. Some risk managers speak directly with their carrier partners, which is wonderful. Some risk managers deliver the news through their broker and that broker speaks with the carriers on their behalf, whichever fits the scenario. It is so important to be communicating to your underwriters about how your world has been impacted this year. And how you and your community are specifically managing the risk associated with the changes. Because not only do we have insurance challenges, this has just brought new risk challenges to the globe, especially for government and nonprofit clients. It's intense. And so I think the more information that can be provided to the underwriters about the risk, about how you're managing it, maybe you have extra security or such, it's just imperative to develop communication to develop a line with the underwriter to discuss your challenges, your successes, what you're seeing. And it's also the perfect time to ask for, I'm not going to say favors, I'm going to ask for perks. Maybe there are premium payment options. Potentially, maybe your midterm exposure has changed from what you originally thought it might be. For example, some clients are rated on their amount of tuition, or their amount of revenue, or their amount of--I don't know--cruise ships coming into their port, whatever it may be. And if those numbers have dropped and you're paying premium based on your original thought before any of this was in our minds, it's just a good time to go back and have conversations and explain the situation where you are and just ask. I would ask for your underwriters to step up, I am seeing many of them do that, they're all on the same boat, and everybody's trying to get through this together. So, communication. I started my answer to this with communication and I'm going to end it with communication. It has never been more important.

Marko: Oh, that's a great last word, Nancy, appreciate that and couldn't agree more. Susan, any final words of advice you have for, say, our governmental clients who are seeing challenges and what they should be thinking at down the road?

Susan: Yeah. So, I think that our governmental clients need to pay close attention to what's going on right now with FEMA, to determine whether or not any of the claims that they're experiencing--or the costs that they're incurring--can be covered through the federal programs that are being laid out there. To Nancy's comment, these folks need to be speaking directly with their insurance brokers to address the risk that they have faced through this COVID-19 event to determine what insurance coverage they may need going forward, whether or not that coverage exists and what the cost would be. And then they need to weigh the cost to determine if they should take the coverage. I know that the Insurance Service Office, which is responsible for developing the insurance forms, the standard, what we call ISO forms, have developed two additional forms specifically related to COVID. But you don't see these being added to insurance policies right now because we're in the midst of a pandemic. It's like asking for flood coverage when we're expecting a terrible storm. It's not going to be available to you at that point in time. So, good conversation with your insurance broker is top of the list.

Marko: Thank you, Susan. Appreciate it. And I want to thank both you and Nancy for, not only your service for these many years, but also for supporting this effort to try to get the word out about insurance and how it affects all of our clients at the state, federal, local, and private sector level with regards to COVID-19 and--more importantly--the things they need to be thinking about in the future. 

The ICF podcast series is designed to examine some of these issues, to provide some insights, opportunities for learning, and there will also be posted a transcript of this particular podcast and additional information that will be developed that will also be available as links. If you'd like to listen to this podcast or any of the other in our series of podcasts, go to under Insights. Insights COVID-19 is an area where we have a number of prior podcasts, additional information articles, white papers and links to both federal, state, local, and key entities that are providing authoritative and official information that you can use to better educate yourself and take the actions you need to. On behalf of ICF, I want to thank both Nancy and Susan, thank our great partner that Nancy works for, Arthur J. Gallagher, for agreeing to participate and be part of this podcast today. And I'm Marko Bourne, senior vice president of Disaster Management at ICF.

And I thank you all for joining us and look forward to our next podcast, where we'll be examining subjects such as critical facilities, continuity, and risk, as well as taking an in depth look further into the Public Assistance Program now that major disaster has been declared for all 50 states in the six territories. And how the other categories of public assistance beyond Category A and category B, the emergency protective measures are being addressed. We're going to look at all these subjects and others and your feedback is welcomed and thoughtful and sought after. Thank you again for joining us. We look forward to talking to you again soon.

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