State of Coronavirus and Insurance Report
By Michael Giusti
People may debate whether or not this pandemic could have been foreseen, but in most areas of the insurance industry, they saw it coming 18 years ago. That is because, following the SARS epidemic in 2002, nearly every line of insurance coverage began writing in clauses that excluded pandemics and infectious disease causes, protecting many insurers from having to pay out claims in a time like this.
That doesn’t mean the insurance industry has been unaffected, though. From auto insurance companies offering refunds to idled drivers, to business insurers fending off lawsuits challenging their exclusions, to life insurers finding new ways to underwrite their policies, COVID-19 has rocked nearly every part of the insurance world.
In this report, we will detail many of the ways the insurance world has been affected by COVID-19, and in turn, how it is responding.
With people falling ill by the hundreds of thousands, attention immediately goes to the front-line insurance product — health insurance.
The good news is, if you already had health coverage through your employer, or through a state health insurance marketplace, or even through Medicaid or Medicare before the Coronavirus pandemic began, you likely won’t see many changes to your health insurance post pandemic. That is because the rules for treating people afflicted with COVID-19 remain the same as they do for treating any other viral infection.
Since passage of the Affordable Care Act in 2010, all health insurance policies now cover treatment for pre-existing conditions. And coverage can’t be terminated because of a change in someone’s health status – such as through contracting COVID-19.
The changes in health insurance from today’s pandemic come if someone has lost their employer-based health plan because they were laid off or had their hours reduced. In that case, a special enrollment period is opening up for the state-run Affordable Care Act marketplace-based plans. That means that people who find themselves newly lacking health insurance can now quickly apply for a new health plan under the marketplace, and if they are a little lucky and very careful, they may not even have a gap in coverage.
In many cases, such as when the family income takes a hit, those people may also qualify for additional marketplace subsidies to help pay for that health insurance. All they need to do is update their marketplace application with their new income to see if they are eligible for a price reduction or an increased subsidy.
In most cases with marketplace-based policies, coverage begins the first of the month after someone enrolls. If someone anticipates losing their job, they can even submit an application before the job officially ends to try and ensure there are no gaps in coverage. But, if that isn’t possible, they can always purchase COBRA coverage from their employer to cover any gaps that might emerge, though that tends to be a pricy option, especially for newly unemployed people.
Flights everywhere are grounded or flying empty, visas are nearly impossible to come by, and summer vacation plans are in the tank. But what if someone had the foresight to protect that prepaid summer vacation with travel insurance before the pandemic took hold? They’d be covered, right? Well, it’s complicated.
Travel insurance specifically prescribes the types of things that are covered. If it is not listed or described in the policy, it likely isn’t covered.
But, say someone does have coverage that was written before the official outbreak, they would likely be covered if, say, an airline canceled their flight, or if they suddenly became ill. In that case, they would get some reimbursement for their vacation, according to the terms of the policy.
That doesn’t mean they have blanket coverage, though. It is important to know that even if someone has travel insurance, fear of travel is never covered – and government warnings against travel also often aren’t covered.
Also, even if they have a policy that was written months ago, it is important to check the fine print. Pandemics and infectious disease outbreaks were often specifically excluded from many policies.
It is also important to know that even if someone is covered and subsequently travels to an area against a governmental warning, the health treatment portion of their travel insurance may become void, so again, it is essential to read all the fine print.
But that all applies to policies written before the official outbreak of the pandemic. After the Centers for Disease Control and Prevention confirmed the first U.S.-based coronavirus infection earlier this year, many things changed, and all newly written travel insurance coverage became severely limited. That is because trip cancelation insurance is meant to cover unknown or unforeseen events – so, because COVID-19 is now officially foreseen, it would almost certainly be excluded from nearly every travel policy.
But that doesn’t mean coverage is completely unavailable. Travelers may still be eligible for “cancel for any reason” insurance. As it sounds, this type of coverage protects the traveler if they have to cancel — well — for any reason.
There is a catch, of course. Cancel for any reason insurance is substantially more expensive than standard travel insurance policies. Also, there are limitations for how and when they can be purchased, such as a requirement that it be purchased within just a few days of making the initial trip deposit. These policies also require that travelers insure the total cost of their trip, not just specific elements like the flight or hotel.
Cancel for any reason policies also don’t typically cover the full cost of the trip, instead paying out a smaller percentage based on what is written in the policy language.
Keep in mind, though, if a cancel for any reason policy includes a pandemic or COVID-19 exclusion when it is written, the trip still may not be covered — even though that is technically “any reason.”
With unemployment driven by government-manded shutdown orders hitting record numbers in all corners of the country, the federal government has stepped in with some changes to the unemployment insurance backstop to help people who are finding themselves, in many cases for the first time, without a job.
Congress passed the Coronavirus Aid, Relief and Economic Security Act, which ushered in many changes, not the least of which is an overhaul to the unemployment insurance system.
Unemployment insurance is a joint state-federal program. Unemployment is funded through fees paid by employers based on how many employees they have on payroll and how much each of those employees earn.
The more someone earns before losing their job through no fault of their own, the more they will be eligible to get in weekly unemployment benefits — up to a state maximum. What the CARES Act did was add a $600-per-week bonus on top of what someone would otherwise be eligible to earn. So, say a worker in Oklahoma was eligible for the maximum $520-per-week payment. After the CARES Act subsidy, their unemployment benefit would more than double to $1,120 per week.
The CARES Act also extended the maximum number of weeks someone is eligible for benefits to 39 weeks – a full 13 weeks longer than most states’ benefits.
Traditionally unemployment was a program that was only available to traditional W-2 employees – or rather people who are on a fulltime payroll at a company. That traditionally left out self-employed people and so-called gig workers, such as rideshare drivers. The CARES Act changed that and made them eligible for unemployment benefits as well.
Businesses need insurance. Otherwise, their liability would be unimaginable. But in the wake of the COVID-19 pandemic, many businesses realized their coverage may not protect them from some of the things they thought it did, and in many cases, the policies had carveouts in unexpected areas.
The first policy most businesses look to when they can no longer perform their primary function is business interruption insurance. That makes sense because their businesses were interrupted, after all.
Unfortunately, standard business interruption insurance won’t cover claims based on the COVID-19 pandemic and the ensuing governmental shutdowns because traditional business interruption insurance is meant to be an add-on to a property/casualty policy. For that property/casualty policy to kick in, and by extension the business interruption portion to kick in, typically, a business has to have some sort of physical damage to its premises first.
But, say a business could somehow prove that the pandemic caused physical damage. Businesses may still be out of luck because pandemics are almost always written in as exclusions for business interruption insurance policies.
All may not be lost for those business owners, though. Some states and jurisdictions are working with their legislatures and insurance regulators to evaluate whether COVID-19 should be covered under business interruption insurance, despite the policy language that appears to exclude it. Although several states have bills moving through their legislatures to try to compel this change, none yet have been acted into law, and it remains to be seen if those laws would even stand up in court.
Beyond business interruption insurance, business insurance has also been affected in other ways, too.
For example, with the army of white-collar workers now working from home, many employers are now questioning how workers compensation will be handled now that the workplace is no longer under the control of the business.
As a rule, workers compensation typically follows the employees as they move to in-home work. So, if someone’s chair collapses while they are in a Zoom call and they break an arm, that would likely be covered by the employer’s workers compensation plan. That said, coverage relies on the employee being injured in the course of their work. So, if they burn their hand cooking dinner, they would be on their own, even though that injury happened in their current “workplace.”
Workers compensation questions are also relevant to essential workers who are still working on their employer’s premises. And it is likely also going to get increased attention as the economy begins opening back up and people start filing back into offices.
That’s because, if an employee is working on their employer’s site and subsequently contracts Coronavirus, and that employee can prove that they contracted it a) while working and b) because of their employment, they may be covered under the business’s workers compensation policy. However, proving all those things might be difficult for the employee, leaving some gray area for the lawyers to sort out.
Another area business insurance is being affected is in the billing policies. Some insurers are waiving late fees for premiums if a business had to shut down because of COVID-19, so it would be worth it for struggling businesses to reach out to their insurance company if making those payments becomes an issue.
Restaurants have some specific coverages built into their insurance policies. While a real estate agent will be mostly concerned with automotive coverage and professional liability coverage, a fast food franchise will most likely be more concerned with spoilage and liabilities arising from their deep fryers.
And while a restaurant’s business owner’s policies, workers compensation policies, and general liability policies are well tailored to their risks, they don’t likely provide any coverage from losses due to a pandemic closing them down.
That is because, much like other types of business interruption insurance, a restaurant’s business interruption coverage is likely tied to their property/casualty policy, meaning if a fire shut down the business, they’d likely be covered for lost income until they reopened. But since it was a germ that caused the shutdown and no physical damage ensued, they may be out of luck.
But restaurants have vast stores of food that don’t get better with age. And because spoiled meat and stale beer can’t be sold later, many are arguing that the shutdowns are causing actual damage to their businesses.
Through this logic, some restaurants are suing their insurers to force them to cover COVID-19 as a covered event under business interruption insurance, but none of those suits have made their way through the courts yet.
In some very rare cases, restaurants might be covered if they have a “contingent business interruption insurance policy” in place. Those are designed to cover a business if they can’t operate because a key supplier is no longer able to provide them with those key things they need in order to do business. So, say a city is under a stay-at-home order, some lawyers are arguing that this type of rider may kick in, for example, if a meat supplier can’t make their regular deliveries.
Other possibilities include “civil authority coverage” riders and “impossibility of performance or frustration of purpose” riders. Just as they sound, they kick in when things beyond the restaurant’s control keep them from conducting business, though most policies don’t often include such language.
Special events insurance
From Austin’s SXSW music festival to Google’s I/O conference to someone’s cousin’s wedding, events are getting canceled all across the country, and many people are hoping that their special events insurance is going to step in and cover them.
In the case of the big corporate events, it is possible that they would be covered, presuming they purchased separate event cancelation policies along with a pandemic rider — costly options that many events go without.
In the case of the Olympics, it appears they have done just that and opted for the extra coverage, but in SXSW and Google’s cases, no such infectious disease rider was purchased, so they got no reimbursement.
Nearly any special events policy written now is going to have specific language written in excluding COVID-19, even if an infectious disease rider is purchased.
That said, in the cases of weddings, nearly every venue today requires bridal parties to purchase wedding insurance, and many of those policies did cover infectious diseases. So, for weddings planned before the pandemic, many of those weddings may have been covered.
But, just like with special events policies, moving forward, even the more generous wedding insurance polices are going to have COVID-19 riders attached.
Film and TV productions require unique insurance with coverages ranging from animal mortality, to bodily injury on set, to property loss or damage, even to whether a camera is faulty, or the film can’t be processed.
Pandemics, on the other hand, are rarely covered.
Nearly every modern production policy has communicable disease exclusions – so on the surface, COVID-19 is going to be excluded and the production companies wouldn’t have any luck recouping costs.
And that is unfortunate because COVID-19 has caused nearly the entire film and TV industry to cease operations, putting hundreds of productions on hiatus and leaving thousands of workers without a job.
That makes sense from a public health perspective. It would be hard to shoot an episode of “The Walking Dead” with their hundreds of extras, dozens of actors and actresses, slew of crew and support workers, and everyone else involved without violating social distancing standards.
It is safe to say that social distancing and limited crowd size would be difficult to pull off in nearly any production, making a hiatus the most logical outcome.
While the production insurance isn’t likely to pay out for the losses incurred because of stalled filing, moving forward, COVID-19 is almost certainly going to make its presence felt. To start, if they didn’t before, all new production insurance policies will almost certainly have specific exclusions for COVID-19 written in.
But what about contracts that were signed months or years ago for site selection and other planned expenses? In those cases, the “force majeure” provision included in most contracts could come into play. Those provisions typically specify that a contract is considered null and void in the case of an act of god or if something else happens that is outside anyone’s control. A force majeure provision might protect a production company from having to honor a contract, but it wouldn’t do any good helping them recoup deposits, or other money that was already spent.
When production does resume, it will be likely that production companies will require anyone on set to sign a waiver, recognizing the inherent risk of being in a crowd, and indemnifying the production company in case anyone on set gets sick.
One of the insurers most directly affected by COVID-19 and the ensuing governmental shutdowns is the auto insurance industry.
With fewer people driving, the risk models that auto insurance companies used to set premiums have been tossed out. The policies they wrote months ago assumed drivers were going to spend much more time on the road, and thus would have represented a much greater risk to insure. Now that the morning commute is a recent memory for many, countless otherwise insured miles are now not being driven, meaning that the auto insurance industry may have inadvertently overcharged their customers.
In response, companies are sending refunds – typically 15% to as much as 35% — because drivers are on the road less.
Those refunds are being sent as statement credits for people on installment plans, or as checks being mailed or direct deposited to people who paid up front.
Many auto insurers are also making donations to community relief efforts and to help community organizations.
Many are also working with the customers to offer payment relief and waiving late fees and suspending cancellations because someone can’t make a policy payment.
Some insurers are also extending coverage to commercial use of personal vehicles, where in the past, if someone used their car for a commercial purpose, it might have been excluded from their coverage, some insurers are now stepping in and saying that would be a covered use.
Policyholders need to beware of scams, though. There have been reports of people calling customers and posing as the insurance company, asking for financial information over the phone, supposedly so they can deposit the refund, but ultimately so they can gain access to those people’s accounts and steal their money.
Insuring deaths due to viruses is really what life insurance is all about, and no standard policy includes an exclusion for global pandemics. Thankfully, that means that if someone had a life insurance policy in place before the pandemic and then died of COVID-19, their beneficiaries would almost certainly be paid out the full death benefit — presuming the insured person paid their premiums on time and was fully honest when they applied for the policy.
That’s not to say that COVID-19 isn’t having its effects on the life insurance industry. The pandemic has changed many things involved in applying for new policies.
One place that life insurance is being affected is in the realm of international travel. Whenever someone applies for a new life insurance policy, they are given an extensive questionnaire to help assess their risks.
That questionnaire has always asked about plans for international travel, but now those questions carry some added weight. That is because if someone has recently traveled to China, Italy, or any number of coronavirus hotspots, the insurance company is more than likely going to delay the date that the policy goes into place to make sure the applicant doesn’t suddenly come down with COVID-19.
The same goes for the health history questions on the application.
The application is almost certainly going to ask if the applicant or someone they live with has recently tested positive for COVID-19. Again, if the answer is yes, it doesn’t mean the policy will be denied, but it might mean it will be delayed for a few weeks until after a full recovery.
Another standard part of the application process is what is called a “paramedical exam.” This is when a nurse comes to the applicant’s house and takes vital signs, such as height, weight, temperature, and blood pressure. In many areas of the country that are still under lockdown, those exams are no longer possible, and insurers have had to improvise a bit.
Some companies are relying more on big data and electronic medical records for underwriting than before. Others are delaying writing the policies until after the lockdowns are lifted.
One option that people can opt for if they don’t want to bother with the paramedical exam is a “no-exam policy,” but that might not be the right option for everyone, because they cost significantly more than traditionally underwritten policies, and their death benefits often aren’t as generous.
And, as always, applicants must be extra sure to be honest and not glaze over relevant details when they are applying for new policies, because if the insurer catches the slightest whiff of dishonesty, they can void the policy and potentially withhold death benefits, in the worst-case scenario.
In many ways, the insurance industry has been rocked by the COVID-19 pandemic. And in other ways, they saw this coming and were prepared for it.
Regardless, post pandemic, many changes and questions will likely emerge moving forward.
For one, no insurance policy is likely to offer pandemic or infectious disease coverage any time soon.
Another question mark is whether states, regulators, and local jurisdictions will step in and try to force insurers to pay for things that they thought were excluded in their policy language.
Yet another question is, with insurers continuing to shy away from covering pandemics, will there be a movement for a federally backed pandemic policy much in the same way flood and terrorism coverage is handled.
While the crisis is unfolding, many insurers are working with their customers to waive late fees and come up with payment plans for premiums. And many more are stepping up their corporate social responsibility programs and offering generous donations to organizations working to fight the virus.
Regardless of what happens, though, rest assured that the insurance industry is still in business, still writing policies, and has many products to cover a diverse set of risks.