Neither COVID-19 nor legislation enacted because of it has seriously harmed the creditworthiness of the property and casualty insurance sector, according to a report released by Moody’s Investors Service on Friday.
Businesses have filed about 1,700 business-interruption claims because of COVID-19 shutdowns, but those cases are largely being decided in favor of insurers, Moody’s said.
“US property policies typically require direct physical loss or damage to the property for business interruption losses to be compensated,” Moody’s said. “Moreover, most policies specifically exclude coverage for losses caused by a virus or communicable disease.”
But the battle for coverage, of course, is far from over. Only 20% of the cases filed have been resolved so far.
“A handful of courts have recently ruled in favor of insured parties despite standard policy wordings,” the report says. “Additionally, court decisions are subject to appeal, a process that could take years to resolve.”
Moody’s says it believes that ultimately, policy provisions will limit insurers’ business-interruption losses is the United States.
“Nevertheless, we expect the ongoing litigation will lead to inconsistent outcomes, appeals to higher courts, elevated legal costs, and some uncertainty on this matter for the next couple of years,” the report says.
For workers’ compensation, which makes up 14% of commercial line P&C premiums, the coronavirus pandemic has had only a “moderate” impact on claim costs, the report says. Moody’s echoed a report by the National Council on Compensation Insurance released earlier this month that said total COVID-19 workers’ comp losses amounted to $260 million in the US.
“The severity of these claims was generally low with 95% of the claims less than $10,000,” Moody’s said. “With more states enacting presumption laws in 2021, insurers will see additional claims but we expect them to be moderate.”
While the passage of presumption laws led to more claims for work comp, state lawmakers also enacted laws that limit exposure for commercial liability. Moody’s said the coronavirus liability protection for businesses that was adopted by most states is a “credit positive” for insurers.
The report says eventually, government might step in to create a public-private risk sharing agreement to cover business interruptions caused by future pandemics. Moody’s said bills were introduced in a number of states last year that would have required insurers to pay COVID-19 business-interruption claims, but none passed.
“With an eye toward future pandemics, some insurers and US legislators are considering public-private risk sharing arrangements to compensate small and large businesses for business interruption caused by pandemics,” the report says. “Common elements of these proposals are that P&C insurers would administer the coverage and assume a limited portion of the risk, while the US government would assume the bulk of the risk.”
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