Insurance companies did not see the COVID-19 pandemic coming, according to Matt Barton, CEO of the state’s largest insurance trade association, the Missouri Association of Insurance Agents.
“It is almost impossible to plan for (COVID-19),” Barton said. “Nobody can predict exactly how broad and far-reaching its effect will be.”
The pandemic has caused heavy financial losses to businesses across the state, forcing some to completely go out of business. However, most standard insurance policies do not cover losses caused by the pandemic, Barton said.
Insurance companies are reporting lower profits due to their clients’ reduced ability to pay premiums, he said. Some insurers are also facing lawsuits from clients seeking coverage for losses incurred due to the pandemic.
In the first quarter of 2020, U.S. auto, home and business insurers saw their policyholders’ surplus drop to $770 billion from $847 billion, a 9.1% increase, according to the Insurance Information Institute. When the surplus drops below $400 billion, several insurers will be at risk.
Missouri Business Alert caught up with Barton to talk about challenges faced by insurers in the state amid COVID-19.
This interview has been edited for length and clarity.
Missouri Business Alert: Can you tell me more about the members of MAIA? How many insurers and what types of insurers do you represent?
Matt Barton: We are the largest and the oldest trade association for independent insurance agents in Missouri. We represent about 450 independent agencies and probably have between 4,000 and 5,000 individual independent insurance agents in the state of Missouri.
MBA: With the COVID-19 pandemic forcing several businesses to shut down, what are you hearing from your members at the moment? What are their most pressing concerns?
MB: The immediate question on a lot of people’s minds was, is there coverage for business income or business interruption in insurance policies. Generally, business interruption insurance or business income insurance is not included in standard insurance policies or commercial insurance policies for risks associated with COVID-19, or a pandemic. I say generally, because there are standardized insurance forms in the industry; however, some insurance companies choose to use their own proprietary forms.
Insurance policies just did not envision that type of occurrence. It is almost impossible to plan for (COVID-19). Nobody can predict exactly how broad and far-reaching its effect will be. We have seen a number of lawsuits in that area, seeking coverage or stating that there is coverage in those policies. Those lawsuits are against the insurance company, not the insurance agency. We’ve also seen a number of states that have attempted to pass laws mandating coverage for business interruption or business income in insurance relating to COVID-19 or pandemics. That’s a real concern for insurance agents and the insurance industry as a whole, because insurance policies were not written or not priced to cover something like that. So if coverage is mandated, it could almost bankrupt the insurance industry. That is a big concern with the insurance industry right now.
MBA: In your opinion, why is it difficult to plan for or write insurance coverage for a pandemic like COVID-19?
MB: In the insurance industry, we have underwriters who have to be able to estimate what loss an event would cost the company, both from an individual customer aspect as well as total customer base. For something like a fire or a tornado, they know what that is going to cost the company and the customer. So that is much easier to plan for than a pandemic that is so large, far-reaching and has so many unknowns. So that’s why most insurance policies, business policies, commercial policies, are not going to include coverage for that.
MBA: With businesses closing and more closures expected, what effects have insurers seen on businesses’ ability to pay premiums? What could diminished premium revenue mean to the business model underlying your industry?
MB: A few insurance companies on the business side have given a break to their customers in the wake of COVID-19 concerns because we know that a lot of businesses have been affected, either by closing completely or simply reduced revenue. And so we’ve seen a few insurers that have allowed companies to either late pay or required a smaller premium in the wake of COVID-19. A lot of insurance companies have already said that profits are going to be down, whether it’s next quarter or the quarter after that, so we have seen insurance companies are starting to plan for that.