Pandemic Insurance with Government Backstop Gets Support from Marsh, Chubb, RIMS

The Pandemic Risk Insurance Act (PRIA) would offer business interruption insurance for health crises through a public/private partnership.

By: Jared Shelly | September 14, 2020

Widespread insurance coverage for future pandemics could be coming soon.

A bill introduced to the U.S. House of Representatives called the Pandemic Risk Insurance Act (PRIA) would empower insurers to offer pandemic business interruption policies with a federal government backstop in the form of a reinsurance program.

Introduced by U.S. Rep. Carolyn B. Maloney (D-New York), the program aims to make pandemic BI policies affordable for all business owners and ease the economic blow of future pandemics.

In a virtual roundtable discussion last week, Maloney said PRIA “will help businesses keep their employees on payroll and weather the storm that a public health emergency brings.”

A Gap to Fill

COVID-19 exposed a glaring hole between the insurance industry and the businesses they cover. Businesses shuttered by government-ordered closures sought relief from their insurance companies — but that relief largely never came. That’s because business interruption policies either require physical property damage to trigger coverage or exclude pandemic risks altogether.

Many business leaders felt duped, particularly small business owners who aren’t savvy about insurance.

In turn, 100,000 small businesses have already closed permanently, more than 55 million American workers have filed for unemployment benefits, and 55% of the businesses that announced closures on Yelp have closed for good.

From restaurants to theaters to retail stores, almost everyone is feeling the sting.

Judging by the virtual roundtable, Maloney appears to have broad support for her bill. Representatives from Marsh, Chubb and Swiss Re Americas spoke alongside members of the National Association of Professional Insurance Agents (PIA), Council of Insurance Agents and Brokers (CIAB), American Property Casualty Insurance Association (APCIA) and other business groups.

The Government’s Support

Insurance companies typically don’t cover pandemics, because it’s hard to spread the risk.

Weather events, conversely, make sense to cover because a hurricane in Florida doesn’t affect policyholders in Pennsylvania. But pandemics affect everyone in every region. That’s why insurance professionals like Tarique Nageer, terrorism placement advisory and leader, property practice, at Marsh argues that the industry can’t cover the risk without the credit and power of the U.S. government.

“But the insurance industry has a role to play, too,” said Nageer. “If we create the right economic incentives for insurers, policyholders and the government, insurance can serve its traditional function of mitigating risk. But pandemics are not fully insurable without the support of the federal government.”

What Is PRIA, Anyways?

PRIA differs significantly from other proposals by lawmakers. Some are attempting to mandate that insurers go above-and-beyond contractual, legal policy language and pay billions of dollars for business losses. Others are attempting to put moratoriums on nonrenewals, and other plans call for coverage to be tied into car insurance.

PRIA is not retroactive to COVID-19 but instead would cover future pandemics and health crises. It also aims to help small businesses by offering an immediate cash infusion rather than making them wait through a long claims process.

Joe Wayland, executive vice president and general counsel of the Chubb Group, said, “A lot of small businesses simply don’t have the access to capital and other resources that could allow them to continue” and that providing them quick cash “keeps people employed and off unemployment rolls.”

Scott Baskin, CEO of the Small Business Advisory Council (SBAC), said the legislation will provide businesses the coverage they thought they’d been paying for all along.

“That is what all these business owners thought they were buying with all the years of premiums,” said Baskin. “This legislation will make it possible for small business owners to have the protection they need to run their businesses.”

Looking Ahead Now, Not Later

Some may say this legislation is premature, because we won’t know the full extent of the pandemic’s economic downturn for some time.

But without action, the insurance industry will have serious trouble moving forward, says Patrick Sterling, head of risk management for restaurant chain Texas Roadhouse, and a RIMS board of director.

“While it might take years to fully put dollar amounts on losses from COVID-19, renewals are happening now. How can risk professionals prepare our organizations for next year and years to come if there is no solution today?” Sterling said. “Operating with this level of uncertainty is harmful to business. Without a backstop, a future pandemic — which could very well happen next year — could be catastrophic.”

Don Preston Jr., senior vice president, Swiss Re Americas, added PRIA is about looking ahead and preparing for the next peril.

“The sobering fact is that the next big thing we can’t imagine today could have similar effects,” said Preston.

“We also know from good experience that when individuals, businesses — including insurers and reinsurers — and government team up and all do our part, we can come up with ways of softening the blow of the next big thing when it looks similar to the unimaginable current one. We believe that it’s our collective responsibility to ensure this resilience.” &

Jared Shelly is a journalist based in Philadelphia. He can be reached at [email protected].

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

By: Risk & Insurance | April 3, 2024

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.