Insurers Scramble to Avoid 9/11-Style Coronavirus Backlash

Insurance companies are facing political pressure to pay what could be a crippling sum of coronavirus-related claims — even though many of them say their policies don't cover pandemics.

Source: Politico | Published on May 29, 2020

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Anger on Capitol Hill is growing over moves by insurers to deny claims filed by restaurants, retailers and other businesses that believe they have coverage to financially protect themselves from a major disruption like the one they're now enduring. The insurance industry is so alarmed at the prospect of a massive payout that it's rushing to put together a plan to get Washington off its back.

With lawmakers and the Trump administration hungry for new ways to support small businesses, insurance trade groups are weighing whether to propose a federal program that would direct funds to businesses disrupted by the pandemic. One early iteration was described as something similar to the victims compensation fund set up after the Sept. 11 terrorist attacks.

Industry insiders argue that it’s a way insurers can help the country during a deep economic slump while also heading off bipartisan pressure from Congress to pay out tens of billions of dollars or more in claims to businesses that have been forced to close their doors to slow the spread of the pandemic.

“The industry is looking to be part of the solution,” said Tom Glassic, a consultant who served as senior insurance counsel to the House Financial Services Committee.

The behind-the-scenes negotiations underscore the pressure that many industries are facing to prop up the economy in the face of what's expected to be a historic level of business closures and layoffs.

As restaurants and shops across the country scramble to make ends meet, they're finding that business interruption insurance policies didn't necessarily cover losses from outbreaks — just physical damage to their property.

Jason Berry, co-founder of Washington-based KNEAD Hospitality + Design, said his company paid $100,000 per year in insurance for its four restaurants only to have insurers deny business interruption claims in recent days. He's speaking with a lawyer and considering going to court, underscoring why the insurance industry is bracing for a massive wave of litigation over disputed payouts.

"Business owners everywhere — not just restaurants — are flabbergasted that they've been paying on a timely basis thinking they're covered if something bad happens only to find out it's not the case," Berry said.

Stories like Berry's are prompting a growing outcry in Washington, and lawmakers are eager to intervene. Insurance lobbyists have already been fighting off attempts at legislation that would have made policies retroactively cover the pandemic.

Last week, 18 House lawmakers led by Rep. Nydia Velazquez (D-N.Y.) told insurance trade groups that their members should recognize financial losses triggered by the coronavirus outbreak as part of their customers’ business interruption coverage. The bipartisan letter was signed by 12 Democrats and six Republicans.

“During times of crisis, we must all work together,” they said.

The controversy prompted state insurance regulators on Wednesday to issue a stark warning that said forcing insurance companies to pay the massive number of business interruption claims would threaten the solvency of the insurance sector and exacerbate the economic turmoil.

Sean Kennedy, executive vice president of public affairs at the National Restaurant Association, said that finding a way for the federal government to help with business interruption insurance claims is a top priority for his group's members. The association has called for the creation of a $100 billion federally backed business interruption insurance program to get funds to businesses in an expedited time frame.

“We will definitely be at the table with our members asking for some kind of solution that will allow restaurant owners to claim their benefits under these policies,” Kennedy said.

In recent days, major insurance trade associations, including the American Property Casualty Insurance Association and the Reinsurance Association of America, kicked off discussions with other business trade groups about the design of a potential federal program that could direct money to affected businesses, possibly via the insurance industry.

One early proposal that circulated among insurance lobbyists in the past few days envisioned a "Federal Business Interruption and Workers' Protection Recovery Fund" — patterned after the September 11th Victim Compensation Fund — that would make assistance available to all businesses. Insurance industry sources said the plan was being revised.

David Sampson, president and CEO of the American Property Casualty Insurance Association, confirmed the group was “discussing public policy options with many industry and stakeholder groups." He acknowledged the need for "liquidity solutions" for the business community during the crisis and said the association hasn't settled on any specific proposal.

"Ideally, if they want to deliver the money quickly, they won’t put insurers in the middle,” said Jimi Grande, senior vice president of government affairs at the National Association of Mutual Insurance Companies. “But we want to be available to help if that’s ultimately the way they go."

The issue is expected to attract greater attention as Congress pivots from the "Phase Three" coronavirus economic rescue package being debated this week and lawmakers turn to follow-up legislation.

“It’s a very sensitive negotiation,” said Joel Wood, senior vice president for government affairs at the Council of Insurance Agents & Brokers. “I wouldn’t want to jeopardize the conversations between all the stakeholders. But there is anticipation that much more beyond Phase Three is going to be required for many of our clients to survive. It’s all about liquidity, liquidity, liquidity.”

For members of Congress pressing insurers to act, it’s a step in the right direction.

“I’m glad my letter to the insurance industry drew their attention to this mammoth problem,” Velazquez said. "I’m hopeful it motivates them to work constructively with Congress so all businesses harmed by the virus can receive badly needed assistance.”

 

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