Hartwig spoke with ITA about how the insurance industry is responding to the COVID-19 pandemic, and its impact on the insurtech sector.
So far, how is the insurance industry responding to the COVID-19 pandemic?
The U.S. insurance industry as broadly defined across the p/c, life and health segments—entered this crisis period from a position of financial strength and stability. For p/c insurers, the largest question has revolved around the issue of business interruption coverage (BIC) and whether loss of business associated with COVID-19 shutdowns and slowdowns is covered by such policies. The answer is no. BIC is triggered by direct physical loss or damage as the result of a covered cause of loss (e.g., fire, explosion, wind, etc.). The actual or possible presence of a virus does not fit that definition. The fact that closure of the business may have been due to an act of civil authority (government action) does not affect this determination. In addition, virtually all BIC policies contain virus and bacterium exclusions.
Workers’ compensation insurance is another concern for p/c insurers, particularly related to instances in which healthcare workers contract COVID-19 as a direct result of their employment.
You have stated that you don't anticipate COVID-19 triggering another TRIA-type federal insurance backstop as after 9-11. Are there any circumstances where you see that changing?
No, I do not see this happening. There is no need for it. The p/c insurance industry is strong, stable sound and secure. There is no lack of coverage or capacity in the marketplace, which is why TRIA came into place—market capacity dried up and prices soared at both the primary and reinsurance levels.
New Jersey and other states have proposed legislation eliminating exclusionary language in insurance policies. Do you predict this happening in more states as the pandemic develops further?
The N.J. proposal was tabled and there is zero chance that elimination of exclusionary language would be upheld in courts. This would amount to retroactively rewriting longstanding contract provisions and would be illegal and unconstitutional by any standard. I do expect to see continued political grandstanding (common after disasters). Politicians have an unfortunate affinity for using insurers as whipping boys. Beyond this, it is highly doubtful that state insurance regulators would support such efforts. The reason is that putting insurers on the hook for billions of dollars of business interruption claims that were clearly excluded from policies and for which they never collected a penny in premium fundamentally threatens their solvency and would likely impair their ability to pay business interruption claims that they are legitimately called upon to pay (e.g., following a major hurricane).
Are specialty insurers more vulnerable to COVID-19-related claims than generalists?
Yes, some specialty insurers may have exposures not likely to be found among generalists. In some cases, the coverage may be more liberal (broader—having fewer exclusions) and they may also write coverages such as event cancellation that in some cases could be triggered.
Are any insurers responding by developing new policies that include pandemic? Do any insurers currently offer this?
The Insurance Services Office (ISO) has recently developed a form that would provide BIC coverage in the event of the actual or suspected presence of the COVID-19 virus. I am unaware of any insurer offering this coverage today.
What is the reinsurance market’s role in all this?
Reinsurers stand behind the primary insurers and thus far would have seen relatively few claims. That said, claims are possible in workers' compensation as the number of workers infected out of the course of their employment rises, as does the cost of such cases. Life insurers purchase reinsurance to protect themselves against excess mortality. At this point, the change in the overall U.S. mortality rate is not material.
How do you think the current economic crisis and COVID-19 will affect the formerly robust insurtech investment market?
Global financial market volatility will likely slow most VC investment activity, including insurtech. Funding is becoming increasingly scarce even for high-quality credit risks and liquidity has dried up throughout the financial markets. While these affects are temporary, increased risk aversion and a preference for more liquid investments are likely to last for some time.
How do you see newly adopted technologies like AI and ML playing a role in the current crisis?
Newly adopted technologies during the COVID-19 crisis will likely play a larger role in the biotech space, due to the enormous investment being made in COVID-19 treatment research. Such technologies could also provide insights into the development of treatment protocols that enhance medical outcomes. These insights could be of immediate use to medical professionals delivering care.