COVID-19: Ten Ways Insurance Agencies have been impacted.

COVID-19:  The Impact on Insurance Agencies

The speed at which COVID-19 is affecting the insurance industry is extraordinary.  I have spent the past 30 days discussing with my insurance clients around the WDC region the immediate impact COVID-19 is having on their businesses.  Here is what I found:

  1. Essential Businesses: Insurance companies and broker/agencies have qualified as “essential businesses” and remain “open for business” albeit most staff is working remotely.
  2. Claims:  So far, claims have been “manageable.”  Post-SARs outbreak in 2003, insurers created exclusionary clauses that specifically exclude pandemics from coverages such as travel insurance and business interruption insurance.  BI is usually limited to physical damages.  On the P&C side of the house, insurers and agency operators are keeping their eyes on workers’ compensation claims.  Some expect that workers may seek claims against employers not properly protecting them against the virus.  I find this to be a bit far-fetched, but it is something to monitor.
  3. Health Insurance Exposure: the immediate exposure here is that there is a direct relationship between businesses laying off employees and the amount of monthly premiums (and agency revenue commissions) decreasing.  Moreover, the testing and treatment requirements and protocols are still an open question – what will they be and will they be covered?  Who pays for this?  Lots of unanswered questions and exposure here.
  4. Regulatory: Most are in a “wait and see” mode to see what develops in the way of COVID-19 related claims and any guidance and/or actions the state and regulatory authorities may issue with regards to COVID-19 related claims.  This would mostly affect the P&C side of the house.
  5. Premium Forgiveness: Several insurance companies are granting extensions of auto insurance premiums due to the fact that people have drastically reduced their vehicle use.  Will others follow? 
  6. Legislation: There is talk of the VA/MD legislatures instituting some legislation that would compel insurers to cover certain businesses’ interruption losses.  This is just talk right now, but something to keep an eye on.  If this were to happen, the ultimate irony would be to those firms previously designated as “essential businesses.”
  7. Life Insurance:  even the life insurance industry will be affected.  Mortality rates are sure to change.  How will this affect life insurance?  Movements in global equity and bond markets will have a significant impact on a life insurance company’s balance sheets as well having a trickle-down impact on agency commission structures.
  8. Investment portfolios – portfolios have been crushed and this could have a trickle-down effect on even a traditional insurance company’s’ financial viability.
  9. Delayed Payment of Premiums:  This seems to becoming more of an issue as COVID-19 marches on, particularly, with small businesses.  While group medical premiums that employers pay on a monthly business are covered under the PPP SBA loan program, P&C premiums are not.  If businesses do not open soon, particularly in Virginia, this will become a trend as small businesses develop more serious cash flow issues.
  10. Decreased Premiums:  as small and mid-market businesses close their doors; their insurance premiums disappear as well.  The immediate impact is on the loss of employee head counts on the benefits side of the house.  WDC metro is holding up pretty well right now, but this may not be the case in 60 days.

I will have more as discussions continue.

Rob Houghton

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