III: Rewriting Contracts And Mandating Payouts Would Bankrupt Insurers

State legislation aimed at retroactively rewriting business interruption policies nationwide would cost insurers tens of billions of dollars a month and quickly imperil the U.S. insurance industry's solvency, according to the Insurance Information Institute (Triple-I).

"Pandemics are an extraordinary catastrophe that can impact nearly every economy in the world, so it is hard to predict and manage the risk," said Sean Kevelighan, CEO, Triple-I, in remarks today to the National Council of Insurance Legislators (NCOIL) and the Rutgers Center for Risk and Responsibility. "Pandemic-caused losses are clearly excluded from traditional business interruption insurance policies for just this reason."

A standard business interruption policy generally pays out when the business incurs a covered loss due to direct physical damage from something like a hurricane or a tornado.

"If insurers nationwide had to pay business interruption policy claims for which insurers collected no premium, it could cost the industry each month anywhere from roughly $150 billion to nearly as high as $380 billion," Kevelighan said, noting the smaller amount accounted for the U.S.'s small and medium-size enterprises (SMEs) that currently have business interruption coverage and the larger amount includes those who do not. About 40 percent of SMEs have business interruption insurance coverage.

"Insurers recognize many of their customers are struggling financially. It is why insurers nationwide are offering auto premium relief programs totaling more than $10 billion and donating $200 million-plus to charitable organizations, such as food banks and those who support first responders," Kevelighan stated.

The federal government's CARES Act and the proposed COVID-19 Business and Employee Continuity and Recovery Fund have won insurance industry support because the government is the only entity with the financial resources to confront a pandemic's economic fallout, the Triple-I's CEO observed, in his presentation.

There is nearly $800 billion on-hand in policyholders' surplus--the U.S. property/casualty insurance industry's cumulative assets, minus its liabilities--to keep the promises made, the Triple-I's CEO added. This surplus is invested for the long-term, mostly in less volatile fixed income investments, Kevelighan noted.

"We are in the middle of tornado season, with hurricane and wildfires to come, and insurers are ready and prepared to keep the promises they have made to policyholders - to be the financial first responders," Kevelighan said.