No one, insurance companies and consumers included could have prepared adequately for the COVID-19 pandemic that’s currently ravaging the world.

Besides, the coronavirus itself is novel. No one knew about it before it hit. But whether or not we had prepared for a pandemic as disruptive as this, the insurance industry has a difficult road ahead to navigate.

Within their limits, many governments have tried to limit the COVID-19 pandemic’s human toll with different health and social distancing guidelines. Many of these, like lockdowns, that are designed to contain the spread of the pandemic have caused a different toll of their own. 

Lockdowns, travel bans, and social distancing rules are now threatening a global economic recession of epic proportions, with virtually every industry affected in one way or another.

Shouldn’t This Be The Moment The Insurance Industry Exists For?

As many industries brace for what will be a difficult recovery period ahead, the insurance industry finds itself in a unique situation. 

On one hand, insurance companies, like other businesses, have had their entire operations disrupted by COVID-19. Lockdowns and social distancing guidelines affect them as every other business. 

Like others, insurers have had to re-engineer their processes so their staff could work from home. As people stay at home, spend and drive less, demand for many of their products has also fallen.

On the other hand, the insurance industry exists for situations like this. Businesses and consumers buy insurance to cover themselves against risks they cannot control. And those don’t come bigger than COVID-19.

But what has emerged from this pandemic is that the majority of insurance policies won’t be able to cover losses caused by this pandemic. Even policies, like those for event cancellation and business interruption insurance, whose coverage you would assume would have been triggered by the forced closures of businesses and canceled events caused by this pandemic haven’t paid out.

Insurance companies took learnings from the last SARS epidemic and added exclusions for epidemics and pandemics to better protect themselves. And while those exclusions have meant they have not been as exposed by this pandemic, it will surely force the insured from questioning the whole point of insurance.

COVID-19 Will Force A Greater Focus On What Is Not Insured Than What Is

Insurance only makes sense for as long as a policy pays out to the extent the insured feels they are getting full value. 

If, as happened with many policies after COVID-19, a policy fails to pay out when you feel it should have, you will have reason to review the policy. After COVID-19, people buying insurance will likely pay more attention to what a policy excludes than what it covers.

The volume of insurance claims rejected over coronavirus has given fuel to a sentiment that insurance companies haven’t treated their customers fairly. The industry as a whole has a serious image problem that will take more than good PR to fix.

Do Insurers Need A Moral Ethics Code?

In a time when many businesses are reconfiguring their factories to produce critically needed ventilators and masks to help efforts contain the COVID-19 pandemic, insurance companies are having to defend accusations they have used technicalities to reject paying claims that would have saved businesses and livelihoods.

In Ireland, the finance minister has accused insurers of not treating their clients fairly. He further supports ‘a strong case’ for refunds of auto insurance premiums now that lockdown measures mean people aren’t driving their cars and, thus, not filing any auto accident claims.

In the USA and Canada, many auto insurance companies have indeed refunded premiums, with the so-called Shelter-In-Place paybacks. Nothing in their auto insurance agreements obliged these insurers to pay back claims, but the decision had a moral justification.

The question is whether insurance companies will submit to the same unwritten moral ethics code where their other insurance products, like event cancellation and business interruption insurance policies, are concerned. 

They could be forced to:

Governments Feeling Pressure To Force Insurers To Pay COVID-19 Business Interruption Claims

Across the US, state legislatures are considering enacting bills that would force insurers to pay business interruption claims even on policies where viruses and pandemics are excluded. 

It hasn’t helped that some insurers are refusing to pay business interruption claims even on policies that do not exclude pandemic induced revenue losses. These insurers argue that coronavirus does not constitute physical damage to a business’s assets as is the standard trigger for coverage with business interruption policies.

In light of the damaging effects of COVID-19, the difference between business disruption caused by physical damage to a business’s premises or assets, for example by fire or floods, and that caused by pandemic-induced lockdowns seem like a negligible nuance.

And there is growing consensus that insurers must remove the distinction:

Coronavirus Business Interruption Insurance Legislation Is Coming

Across the USA, insurers refusing to cover COVID-19 business interruption losses are on notice. There is a bill that will compel insurers to cover business interruption caused by coronavirus in the works in Massachusetts. New Jersey is considering similar legislation. 

New York and Pennsylvania are considering their own bills that will force insurers to waive their pandemic exclusions and cover COVID-19 business interruption claims.

Across the pond in the UK, momentum is growing for mass lawsuits against insurance companies rejecting business interruption claims citing pandemic exclusions. Here in Canada, there is a class-action lawsuit against indemnity insurers who are refusing to pay business interruption claims.

There is a sense that insurance companies have abdicated their responsibilities, choosing profit over covering their business clients, many of whom face a bleak future even if they manage to ride out the COVID-19 firestorm. 

The proposed bills are bad news for the insurance industry. So are all the class action lawsuits that aggrieved businesses are considering. Overregulation is never good for business. 

Consumers will say insurers had it coming by refusing to honor claims. But what does it all mean for the future of insurance?

Demand for Comprehensive Cover Will Grow

It may be too early to tell what shape it will take, but the insurance industry will change post-COVID-19.

Insurance companies, as ever, will take measures to protect their businesses. With the furore COVID-19 exclusions have kicked up, future exclusions over viruses and bacterial epidemics will be more subtle.

More consumers than before will be buying more comprehensive insurance cover. The jury is still out what they will expect to pay for this cover. It’s not like insurers haven’t been selling policies with ‘all risks’ cover.

That the insurance industry will change after COVID-19 isn’t debatable. What isn’t as clear is what shape that change will be for the different types of insurance. Let’s look at that:

Auto Insurance

A remarkable feature of the COVID-19 containment measures authorities worldwide have instituted is the eerily quiet and deserted streets. 

City and countrywide lockdowns have meant people rarely drive their cars. Auto accidents and auto accident insurance claims have seen record plunges as a result. So much that auto insurers have had to refund premiums.

Going forward, the industry has to find a way to legislate for reduced risk exposure during state-enforced lockdowns. 

Given what has happened with COVID-19, it is not unreasonable for consumers to demand policies that can flexibly adapt to circumstances where government decrees drastically reduce auto insurance policyholder’s risk exposure.

Business Insurance

Despite the huge mess over rejected COVID-19 business interruption claims, businesses will still need insurance. It will be unwise to forgo insurance entirely. Many will be reviewing their coverages, At worst, businesses will possibly switch insurers.

There will also be a higher demand for more comprehensive cover to close the many coverage gaps COVID-19 has revealed. But to address these coverage gaps, businesses will expect a relaxation of the rigid terms that have opened these gaps. 

There will be a debate on the whole point of business interruption insurance if claims are going to be denied over risks that are unexpected but well within the realm of possibility. 

Epidemics and pandemics are occurring with increasing regularity that a business insurance policy that excludes coverage for risks associated with them isn’t worth it.

Travel Insurance

Because of COVID-19, the global travel industry faces an existential threat. And so does the travel insurance industry that’s literally tethered to it.

This pandemic has been so disruptive for the travel insurance industry that some insurers have stopped selling policies altogether. The post-pandemic outlook does not look too promising either.

When travel insurers start selling policies again, it is possible that policies that cover trip cancellations ‘for any reason’ will not return. In their place will be policies with new exclusions to protect insurers from future pandemic-induced disruptions.

On policies where trip cancellations caused by pandemics will remain covered, insurers will likely only commit to coverage where a trip was booked before a travel advisory was issued. Policies will more explicitly exclude coverage for losses caused by government-forced lockdowns.

Event Insurance

Virtually all major conferences slated for this year have either been postponed indefinitely or canceled altogether. The Summer Olympics, arguably the world’s biggest event of any kind is the latest to be postponed. 

As a result of all these cancellations, event organizers are facing big losses. As many event insurers have added exclusions for coronavirus cancellations, after the COVID-19 pandemic, players in the event industry will have to review their options for future event cancellation insurance.

Consumers Must Brace for More Complex Insurance Policies

COVID-19 has disrupted everything in its path. Going forward, it’s unlikely to be business as usual in many industries.

The insurance industry will face greater scrutiny and possibly more restrictive legislation than before. Specifically, insurers will have to defend accusations they have profited from the COVID-19 pandemic. 

To quell growing consumer activism, insurance companies may have to soften and even roll back some of the exclusions that have caused so much pain for their customers. But in the exclusions’ place will likely be more complex policies.

It’s bad enough that insurance companies have been blamed for complex policies that are full of legalese. Now, it can get worse as insurers look to protect themselves from future disruptions. 

For consumers buying insurance, it will become even more critical that you work with a knowledgeable broker so you can fully understand a policy’s terms and exclusions.