Risky Business: Insurance trends to watch in health, events, life and business
The COVID-19 pandemic has caused shake-ups in virtually every business sector … including the typically staid insurance industry.
Shockwaves from the pandemic go beyond health insurance claims made by COVID-19 patients. From the spurt of the remote workforce to the unprecedented business interruption, the novel coronavirus has dealt many cards that are brand-new for the insurance industry, which could pave a new way forward for insurance.
Below are five post-pandemic trends that the insurance industry is navigating – as well as how those trends might impact consumers going forward.
Health insurance rates for 2021 will be as unpredictable as they’ve ever been. The insurance rates that you pay each month, quarter, or year? Those are calculated based “on a 12-month lookback of claims,” according to David Ford, agency principal for Traverse City’s Ford Insurance. In a normal year, that system gives insurance providers a chance to look at their annual data, see how common certain claims are, determine their claim payout costs versus their revenues, and set rates accordingly. But when an event disrupts the status quo as thoroughly as COVID-19 has, the situation proves so abnormal that it makes drawing any firm conclusions nearly impossible.
Ford says that’s the case this year for health insurance providers – not just because some patients have had to make costly claims for the treatment of a dangerous virus, but also because many other health insurance claims have simply ceased.
“When we had everybody in the ‘Don’t leave home unless you have to’ mode, there were fewer people who went to the doctor for elective procedures and checkups,” Ford said. “That’s going to be reflected 12 months from now into what the rates are going to be.”
One of the complications for insurance providers right now is the Affordable Care Act (ACA), which requires health insurers to spend at least 85% of their annual premiums on medical claims. According to CNBC, some insurers have even been giving money back to members “through premium rebates and waived copays on doctor visits,” all in anticipation that they might fall short of the ACA requirement for 2020 due to the dearth of elective procedures. At the same time, insurers aren’t sure what to expect for the coming months – particularly in terms of a potential fall or winter surge in COVID-19 cases – which is turning the process of estimating 2021 rates into little more than guesswork.
For insurers, the uncertainty goes beyond the amount on a plan member’s bill. The purpose of using medical care trends to estimate costs and set rates is that it allows insurers to make a plan for how they are going to pay out the claims they expect to receive in a given year. With all the usual benchmarks skewed due to COVID-19, insurance carriers risk either over-charging or under-charging for health insurance.
The former outcome is bad for the health plan members and could potentially lead to higher deductible plans, larger out-of-pocket costs, and situations where people in need of care end up uninsured or underinsured. The latter outcome is bad for insurance providers, because it could potentially leave them without a big enough pool of cash to pay claims – especially since all of 2020’s deferred care could potentially lead to an uptick in claims for 2021.
Just how difficult is the guessing game for health insurance rates right now? According to the healthcare nonprofit organization KFF, proposed rate changes for 2021 currently range from a 12% decrease to a 31.8% increase.
Certain types of coverage could be harder to come by in the immediate future. “The immediate impact of the virus affected the way we do business and some of the coverages available,” said Tyler Bartosh, vice president of sales for Top O’ Michigan Solutions, citing special event coverage as a type of insurance that may be difficult for businesses or individuals to purchase in the near-future. Special event policies can include cancellation insurance, which reimburses the policy holder for costs incurred in the planning and preparation for an event; or general liability coverage, which protects the event host, planner, venue or caterer from legal litigation in cases where a third party suffers bodily injury, illness, or property damage due to an event.
From weddings to concerts to conferences to festivals, COVID-19 has brought about the cancellation of countless events. In other cases, event planners have been left wondering if they can host events without putting guests at risk. These factors have together made the event insurance market riskier than ever before – and have caused many providers to pause their offerings altogether.
“Many companies stopped issuing policies for events because their policies were silent on coronavirus-like issues, or did not specifically exclude them,” Bartosh said. “I feel that general liability policies will continue to change (in the future) and will include verbiage that will exclude virus-related claims.”
The availability of other policy types could be affected, as well. For instance, Bartosh points to employment practices liability insurance and directors & officers liability insurance. While those policies haven’t been paused to the same degree as special event coverage, they have become more difficult and expensive to purchase.
“[Those types of policies] were impacted early on due to an increase of liability suits for the handling of the pandemic,” Bartosh explained. “The more stringent underwriting and increased cost for coverage like this could continue as the insurance industry approaches a hardened market.”
Life insurance will become more commonplace. While certain types of insurance coverage are becoming scarcer due to the pandemic, others are seeing a spike in popularity. Specifically, both Ford and Bartosh say their agencies have tracked an uptick in interest for life insurance coverage since the pandemic began – a trend that could continue if the health crisis stretches on.
Ford notes that, in the early stages of the pandemic, even as the industry faced unprecedented uncertainty, a common prediction was that people were going to start buying life insurance.
“And sure enough, we had lots of calls,” Ford said. “We sold a lot of policies during that beginning period, a)because had people time; and b)because the news was constantly talking about how many people were dying from COVID-19. So people were saying, ‘Well, I’ve got a mortgage, I’ve got kids. If I get a life insurance policy, at least I can fulfill some of my obligations if something happens to me.’”
Ford adds that, before the pandemic, only about 50% of American adults had life insurance of any kind.
At Top O’ Michigan Solution, Bartosh says the increase in interest for life insurance policies has also helped the team experiment with selling insurance in new ways – and on faster timelines.
“We have been helping place many new life insurance policies and doing so via video conferencing,” Bartosh said. “This has shown that we can continue to enhance the way we do business and are able to get policies in force in as little as two days.”
Business interruption policies may be poised for a new chapter. Between March and April, 43 states issued stay-at-home orders, creating an unprecedented interruption to the usual rhythms of day-to-day American life. The impact was deeply felt for businesses: By July 10, Yelp was reporting that nearly 73,000 businesses in the United States had closed permanently due to the pandemic. Exacerbating the pain of the COVID-19 interruption for many businesses, was the fact that their business interruption policies offered no coverage against the pandemic.
“There is a virus exclusion in business interruption policies and there always has been,” Ford said. “When I was a new agent, we kind of breezed over that (when reviewing these policies). We’d say, ‘Why did they put that exclusion in there? When are we going to have a virus or communicable disease that’s going to interrupt business?'”
Instead, agents would focus on other threats, like fire or weather.
“So we wouldn’t even read the language, because we’d be looking for things that we thought really mattered, like ‘What if my business burns down?’ Or ‘What if lightning strikes and blows out all my electrical systems?’ Those things happen all the time,” said Ford. “So we just kind of passed over the virus thing. And then when, when COVID-19 hit, we immediately had businesses calling and saying, ‘What if my business is shut down because of this COVID virus?’”
Every time a business called about a business interruption policy, Ford would file the claim with the provider. Every time, those claims came back denied. Still, he says having a record of the claims is important – especially if something changes with business interruption insurance down the line and those businesses end up being eligible for some form of reimbursement.
Right now, businesses are fighting in court for the business interruption payouts they believe they are owed. As of early August, Insurance Journal was reporting that there had already been more than 700 insurance coverage lawsuits brought in the United States “by businesses seeking coverage for COVID-related interruptions.” More are being filed every week.
While Bartosh understands why proprietors feel that a business interruption policy should cover any unforeseen interruption to business, he says insurance companies aren’t being greedy or stingy in denying the claims, they’re just not in a position to pay out policies for a widespread business interruption on the scale of COVID-19.
“This is a difficult time for everyone, and in the insurance industry, you want to be there to help pay claims when something happens,” he explained. “However, the coverage for business interruption wasn’t intended – or underwritten – for a pandemic that led to government-sanctioned closures. If companies had been forced to pay these claims when the policy – a contract – stated coverage would not apply, we would have a financial collapse and a dangerous precedent for legally binding contracts.”
Even if insurance providers can’t afford to pay business interruption policies related to COVID-19, both Bartosh and Ford say there’s still hope that businesses could receive some reimbursement for their losses. Conversations on the topic have been happening at state and federal legislative levels. Those dialogues could lead to something similar to what happened with terrorist threats (another risk not covered by standard business interruption policies) in the wake of the September 11 attacks.
“This issue will most likely lead to a solution similar to the way terrorism risk insurance was developed following 9/11,” Bartosh said. “It was designed so that the government would act as a backstop to share some of the costs after (those costs) reach a specified threshold.”
Working from home will render cyber liability policies even more important. Countless businesses have pivoted from in-office operations to work-from-home models during the pandemic, whether temporarily or indefinitely. While this approach helps cut down on the risk of viral exposure and spread, Bartosh says it also “increases the risk for data breach or cyber-attack.”
As more businesses settle into a long-term pattern of working remotely, Bartosh says he is advising them to look at multiple strategies for protecting their suddenly distributed workforces from cyber threats. One of those safeguards is insurance.
“(The problem) could be something as simple as an employee’s handwritten notes that include private information, or unsecure practices with a home computer,” Bartosh said. “Not only will businesses need to take additional steps to protect their data and increase employee cyber training, but they should add a cyber liability policy or increase their limits to address this risk.”