The COVID-19 (coronavirus) global outbreak is obviously a fluid and evolving situation: anyone who claims they know what will eventually happen isn’t telling the truth. Even global health and infectious disease specialists can only try to model likely outcomes as we learn more about this new pandemic.

But with governments around the world restricting travel, closing schools, eliminating public gatherings and advising employees to work from home, this outbreak has already significantly impacted the world.

As with many other business verticals, property & casualty (P&C) insurers are busy trying to understand how to best serve their customers during this crisis, while also attempting to calculate the impact to their business.

This pandemic has affected the industry in ways we never would have predicted. Most carriers were not fully prepared to transition their workforce to work from home (WFH) status for a lengthy period. This means empowering insureds, claims handlers and agents to manage policies and communicate 100-percent digitally across devices and journeys.

Despite the formidable difficulties, a Sapiens blog post by my colleague Ori Sarid from nearly a month ago predicted that the impact of coronavirus on insurers may not be as severe as originally feared. In fact, it may even open up opportunities for certain insurers, provided they have the right technology and the ability to shift their organization quickly.

A recent email regarding the effects of coronavirus on the insurance industry from Stonybrook Capital, a strategic advisor and thought leader for insurers’ senior management, boards of directors and company ownership, similarly implied that there may be reason for cautious optimism in the face of the pandemic:

The current accepted wisdom is that unless an insurer offers policies covering specialized domains such as trade credit, business disruption, or travel and event insurance, it is unlikely that this virus will directly impact the likelihood or severity of claims experience. Even in instances where such coverage as business interruption is offered, it is included as a sublimit lower than the policy limit.

The email concluded on a somewhat reassuring note:

“…relative to many other industries such as airline, hospitality, sports, and others, the impact (of coronavirus on insurers) appears to be more muted and indirect. Certainly, we are in unprecedented territory and surprises are likely to emerge unexpectedly. That said, our perspectives on the industry are – on balance – relatively neutral.”

Potential Game-Changer

Unfortunately, one such surprise may be starting to emerge…

A state legislature in America is investigating a possibility that could have a MAJOR impact on property & casualty carriers. The White and Williams legal firm reports:

Despite the existence and use of the “Virus” exclusion — approved by state regulators years ago — the New Jersey Legislature is taking the extraordinary step of proposing a new law to not only impose virus coverage on insurers that specifically excluded it, but also apparently on insurers that did not write first-party business interruption coverage at all. If enacted in its current draft form, the law would force insurers of certain businesses to provide business interruption coverage for COVID-19 losses, even though policies may have the regulator-approved “Virus” exclusion.

If passed and then adopted by other states, this could be a game-changer for property & casualty carriers, just in terms of small business coverage. To put things in perspective: in its blog post, “Looking Ahead to the Digital Evolution of Small Commercial Insurance,” Novarica noted: “Small business insurance accounts for about a third (or $100B) of the U.S. commercial lines market.”

Such a move by the NJ legislature would transfer the financial burden of COVID-19 to virtually all insurers doing business in New Jersey and then other states who copy the legislation. This could cost P&C carriers – especially carriers supporting commercial lines – billions of dollars!

Sapiens will be monitoring this situation closely and will continue trying to help our P&C carriers during this difficult time. My next blog post will look at how coronavirus is expected to impact different insurance lines of business.

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