Nostradamus himself could have imagined how drastic life would change overnight by COVID-19. Schools, business, and life in general have been completely disrupted. It is hard to say for how long. As a result many industries are reevaluating how they conduct business, including the insurance industry. In this month’s blog, we discuss insurance claims on the horizon, how the insurance industry is going to react and what we expect to see from the insurance marketplace in the near future.
Prediction 1 – Claims Will Be Pouring In
- Cyber Claims – with so many employers shifting to a remote workforce, there was not enough time to get enterprise grade networks set up for many small businesses. With so many individuals at home using their dog’s name as a wifi password, companies can be exposed. The damage may already be done since it can take months to discover a data breach. The prediction here is we expect to hear more news about cyber claims in the coming months.
- EPLI Claims – ‘Sorry but we have to let you go.’ With so many individuals being let go, there is bound to be some missteps on the HR side. Some of the stories I have heard so far would make an HR attorney foam at the mouth. Letting go of an employee on maternity leave, firing hundreds of employees over a 2 minute Zoom call, or cutting salaries by 25% with little notice to the list. As of today, many businesses are limited to 25% capacity. But how will the business community react when an employee refuses to return to work for fear of contracting COVID-19 or goes back to work and contracts the virus? The Insurance Journal article, Few Corona Virus Lawsuits Have Been Filed Thus Far, states how ‘businesses are urging lawmakers from what they fear could be a flood of lawsuits by workers and consumers blaming employers for exposing them to the new coronavirus’. In short, we predict an uptick of Employment Practices liability claims.
- D&O Claims – D&O claims with public companies are already in the news, but there are so many companies that either took no action, didn’t take the right action, or didn’t take action fast enough that will result in D&O claims. Some companies have already declared bankruptcy, but many will have to make hard decisions to survive, which could lead to shareholder claims. The other issue is related to cyber claims. In the scenario where a company did not react with the appropriate action or react fast enough to a cyber claim (prediction 1 above), the management could be held liable for the devaluation of a company related to a cyber claim. The article, Prepare Now for the Coming Wave of COVID-19 Related D&O Claims, from Jones Day goes into more detail on how this might play out along with some tips on how to posture.
In summary we predict to see many D&O claims coming over the ensuing quarters.
Prediction 2 – Insurance Industry Reaction
- More expensive policies – carriers are already starting to see the pain from not paying business income claims. It will take time and resources to defend themselves, even if they don’t pay out a claim. Expect to see increases across the board when it comes to premiums.
- Adding in exclusions – some policies already have microorganism exclusions, but exclusions are already drafted, excluding COVID-19 related claims. Expect to see clarification endorsements on renewals.
Prediction 3 – Insureds Will Be Evaluating Insurance Programs
Buying Policies Previously Not Purchased – Startups will consider buying policies they had not purchased previously.
- EPLI – we have already seen a few clients asking about a separate EPLI in conjunction with their PEO EPLI limits.
- Cyber – traditional businesses who put less emphasis on cyber exposure are now rethinking this with a remote workforce.
- D&O – many carriers are tightening up underwriting on new businesses. This means it may be more difficult to purchase D&O moving forward. If any company is on the fence looking for D&O, don’t wait too long.
- Key Man Life – we have already had an influx of inquiries on key man life thinking what happens if my co-founder died from COVID? If you would like to get a Key Man Life Quote, click here.
- EPLI – we have already seen a few clients asking about EPLI in conjunction with their PEO EPLI limits. One PEO increased their EPLI deductible from $75k to $125k. They know the claims are coming and want to make sure they protect their downside.
- Cyber – on the cyber side clients are asking.
- D&O – some carriers are tightening underwriting guidelines. Others are simply adjusting premiums to prep for the ensuing D&O claims.
Finding New Carriers and Agents – it might be because carriers did not pay a claim or an insurer did not fully understand how Business Income responds in a claims scenario.
- D&O – some carriers are tightening underwriting guidelines. Others are simply adjusting premiums to prep for the ensuing D&O claims. When it is not required, only the sophisticated companies with assets to lose will be purchasing D&O. Founders are starting to rethink this.
In summary, the insurance industry is affected by COVID-19, and we will see lots of changes to come. We will be monitoring these changes and trends and make sure we keep our clients well postured for the future.