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Legislation proposed by House Democrats that would nullify existing exclusions and force insurers to cover business interruption losses from viral pandemics would be the end of the market, insurer groups say.
The industry pushback came in response to the proposed Business Interruption Insurance Coverage Act of 2020, a draft of which is circulating in Congress, led by California Democratic Rep. Mike Thompson.
The legislation would make available insurance coverage for business interruption losses “due to viral pandemics, forced closures of businesses, mandatory evacuations, and public safety power shut-offs,” according to the draft bill.
It would also void any exclusion in place in a contract for business interruption insurance as of the date of its enactment.
Another section of the bill suggests that insurers would be allowed to reinstate exclusions if policyholders fail to pay increased premium charges for business interruption coverage.
In an April 13 letter to Rep. Thompson, insurer groups said that mandating coverage for this size and type of exposure while nullifying existing exclusions would amount to “an unconstitutional abrogation of insurance contracts and end the very existence of the business interruption insurance market as we know it.”
The proposal would also “undermine existing protections for the business community and policyholders against risks that are currently covered under standard business interruption policies,” according to the letter from government affairs staff at the National Association of Mutual Insurance Companies, Independent Insurance Agents & Brokers of America, American Property Casualty Insurance Association, Reinsurance Association of America and the Council of Insurance Agents & Brokers.
The proposal comes just days after President Trump suggested insurers should pay some business interruption claims related to the coronavirus pandemic.
His comments came as a group of Republican senators wrote to him to express concerns about various state lawmakers introducing bills seeking to mandate business interruption coverage for virus-related losses.
A growing number of commercial policyholders have sued their insurers seeking business interruption coverage related to the coronavirus pandemic but insurers maintain that direct physical damage is required for the coverage to kick in.
Recent estimates show that business continuity losses just for small business of 100 employees or fewer could amount to between $220 billion to $383 billion per month, while the total industry surplus is only $800 billion, insurer groups say.
The New York-based Insurance Information Institute said Tuesday that only the federal government has the financial resources to cover global pandemic risks.
“It is important to look forward toward government-backed solutions to help businesses withstand and eventually reopen. COVID-19 is now impacting every state in the Union at the same time, and only the government has the financial wherewithal to provide assistance,” III said in a statement.
A draft bill that would provide a government backstop to cover business interruption claims from a future pandemic is circulating on Capitol Hill.
More insurance and risk management news on the coronavirus crisis here.
A discussion draft of a bill that would establish a federal backstop for pandemic insurance industry losses in excess of $250 million is being circulated on Capitol Hill.