Economy Health

Insurance Companies Say Action Must Be Taken to Avoid Collapse of Insurance Industry

Representatives of the insurance industry took action and wrote a letter to some congressional lawmakers in California, revealing that insurance companies do not have the foundations necessary to withstand the COVID-19 pandemic.

“Insurance coverage works by spreading risk, but that model simply cannot account for a situation in which losses are catastrophic and nearly universal,” the April 2 letter noted. “Standard business interruption policies do not, and were not designed to, provide coverage against communicable diseases such as COVID-19, and as such, were not actuarially priced to do so.”

The letter added that the groups are ready to work with Congress to find solutions beyond the CARES Act, which provides for loan programs that will give down payments for Main Street businesses. The CARES Act, or the Coronavirus Aid, Relief, and Economic Security Act, is a $2.2 trillion stimulus package passed by Congress. The organizations said that further liquidity will be necessary to avoid an “unprecedented, systemic economic crisis.”

According to insurance experts and regulators, many companies are finding it difficult to get an insurance payout due to policy changes after the 2002-2003 SARS outbreak. Many insurers added exclusions to standard commercial policies for any losses due to viruses or bacteria. This language could allow insurance companies to not have to pay billions of dollars to companies because of the COVID-19 pandemic.

Robert Gordon, a senior vice president at the American Property Casualty Insurance Association, said, “Insurers realized they would not be able to cover such a broad-scale event.” This is an issue that is widely expected to be settled in the courts.

Sources: The Hill, 4/8/20; Washington Post, 4/2/20.

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