Sunday, December 6, 2020

Knowledge@Wharton: "What Role Should Insurers Play in Covering Pandemic Business Losses?"

 From K@W:

Businesses in the U.S. and elsewhere are fighting what appears to be a losing battle with insurance companies over claims relating to losses incurred during the pandemic. Many business owners mistakenly assumed that their coverage for “business interruption losses” includes the financial pains brought on by coronavirus lockdowns, said Howard Kunreuther, co-director of the Wharton Risk Management and Decision Processes Center, during a recent segment of the Wharton Business Daily radio show on SiriusXM. (Listen to the podcast above.) Kunreuther is also a Wharton professor of operations, information and decisions.

“They didn’t realize that they had been excluded from viruses, which happened because insurers excluded this coverage following the SARS epidemic [of 2002–2004],” said Kunreuther. Meanwhile, insurers have been slugging it out in courts with businesses over the claims (with insurers securing favorable rulings in many cases).

For many small businesses such as restaurants, the denial of business interruption insurance for COVID-19 losses spells bankruptcy and closure, said Kunreuther. He called for public policy intervention — especially public-private partnerships — to find ways to balance the insurance needs of businesses with the reluctance of insurers to provide coverage for pandemic losses. John Doyle, president and CEO of Marsh, the world’s largest insurance brokerage, has endorsed the idea of public-private partnerships as the way out.

According to Kunreuther, insurers incurred big losses because of SARS, but they were not “enormously severe.” But the SARS episode was “a signal to insurers that if there were future epidemics or pandemics, they would be in serious trouble,” he said. “Insurers took stock and said, ‘This is a risk that we don’t feel that we can really insure. And this is a warning to us that we probably should take this out of our coverage.’”

Most businesses felt that they were covered on viruses for business interruption, Kunreuther noted. “They were not aware of the exclusion on their policy. They would have had to read it very carefully.”....


Related at Artemis, December 1:
Munich Re lifts 2020 COVID-19 loss above $4bn, expects ~$720m more in 2021

If interested, November 10's "Insurance: Epic Battle Over Covid-19 Coverage" has many of our previous links. It's big money 

Ditto October 13's: "BigLaw on Big Insurance: Covid-19 Business Interruption Claims In The UK"