While historical losses led to current insurance price increases and reduced limits, a potential COVID-19 industry correction may not be far behind. At the onset of 2020, insurance carriers found themselves literally under water. Across lines of coverage, from professional liability to property, carriers were playing catch up from the catastrophic claims of 2016 to 2019.
Over the past several years, natural disasters, increasing sexual harassment liability from the #MeToo movement, nuclear verdicts in transportation and property water damage claims, all joined forces to impact the insurance market into correction. In early 2020, many carriers were operating at combined loss ratios of 100% and then, the COVID-19 pandemic hit.
For the last several years the insurance industry has been attempting to overcome years of unprofitability, caused by a combination of inadequate pricing models, under reserving of losses, a general, lack of underwriting discipline, and, unprecedented nuclear jury verdicts. A decade of increased natural disasters, an influx of sexual harassment liability stemming from the #MeToo movement and unprecedented property water damage losses have all joined forces to send the insurance market into correction mode. These causes have subsequently led to a major reduction in capacity, i.e., insurers unwilling to offer coverage, and, major price increases across the many insurance lines, especially in the property and umbrella capacity.
The insurance industry was planning for 2020 to bring both correction and stability to the marketplace. Insurance companies were hoping to stabilize pricing, capacity and profitability. In fact, the first quarter of 2020 returned record earnings to insurance companies and we were well on our way.
But in early 2020, COVID-19 proved to be the proverbial “fly in the ointment”. COVID-19 has affected every corner of the globe and every segment of our economy. Insurance companies will ultimately have to decide on how much more risk they are willing to take on to respond to this and similar events in the future while again trying to keep an eye on profitability. Reinsurance carriers, the backbone of the insurance industry, have and will continue to raise their rates in anticipation of more exposure, the inevitable exit of weaker carriers and demand for coverage.
Many businesses, including restaurants and celebrity chefs, have already filed claims seeking reimbursement from their insurers1. They’re the first of what legal experts predict will be widespread litigation brought by policy holders. As customers demand solutions to possible future events the role of the insurance broker becomes ever more important.
While not yet officially an insurance industry disruptor, here are 4 ways COVID-19 is currently impacting commercial insurance that businesses should be aware of:
1. The evolving role of the broker.
Our customers are looking to their broker for advice more than price these days. Insurance brokers are spending more time on consultative services than ever before. Topics include COVID-19 privacy and liability employment issues, how to present as a best-in-class risk to underwriters, worker’s compensation eligibility, claims and coverage and more.
It’s never been more important to partner with a broker that specializes in the hospitality industry, understanding your unique exposures, with risk services capabilities and strong carrier relationships.
2. Increased scrutiny from underwriters.
Underwriters are inquiring about every renewal. Before taking risk on, underwriters want to know your business’ pandemic response. What is your business’ level of exposure with COVID? What are you doing to mitigate it? Underwriters will want to know that your business is healthy financially before writing new coverage or even renewing an existing policy.
3. COVID coverage or lack of coverage is being very specifically addressed.
The vast majority of COVID Business Interruption (BI) and Property claims have been denied based on the inability to prove COVID caused “physical loss or damage.” Moving forward, most policies will have very specific language excluding pandemic coverage with COVID coverage most likely cited as well. Where coverage is granted, it will be with specific sub limits and the customer will elect to “buy up”. There is also potential for a federal “backstop” to address the concern at a catastrophic level.
4. Businesses need to think profit and loss management.
There’s a good chance COVID-19 will further impact insurance costs. Prepare now. Look at every line item of your business’ profit and loss margins to see what can be redirected. Have conversations around business strategy and maintain a conservative outlook on spending, while planning for higher insurance rates this year and in the immediate
future.
Although current policy limits and cost increases are linked more to historical losses than the current pandemic, the question still lingers: When will COVID-19 exposure catch up to the market? The answer is unknown.
As 2020 unfolds, carriers, insurance advisors and business owners alike will remain watchful for changes in exposure and its resulting effect on the commercial insurance market. Work with an experienced insurance broker and their risk management experts to learn how to develop a security risk management program and business continuity plan that will help protect your business and employees from the unexpected and prepares you for the market ahead.
For the latest information, guidance and resources on COVID-19 to help you protect what matters most, please visit www.hubinternational.com/coronavirus.
1.https://www.insurancejournal.com/news/national/2020/03/27/562627.htm
