Insurance in the Time of Coronavirus: Risks, Threats, and Reality

In a mere three months’ time, the world has been upended. The novel coronavirus known as COVID-19 is now at large on our shores and we’re hearing dismal projections in every sector imaginable. While it likely isn’t anyone’s first thought, there is one aspect of personal and business life that comes into sharp focus as the crisis continues to develop––insurance. That non-negotiable necessity, the protection for life’s rainy days. Now that the storm is well-fixed above us, what part does insurance play? How is the enormity of the global coronavirus pandemic affecting the industry?

Where Things Stand

The insurance world has expanded to include specific coverage for nearly every conceivable need. For every essential or elective move in life, there’s a policy to fight off risk. Now that a crisis is well and truly upon us, we’re seeing overcrowded hospitals, increased mortality, and overstretched first responders. Because of the very real and present fear of infection governmental authorities across the nation have essentially shut down typical business operations. Retailers, food service companies, entertainment venues, and tourist destinations are shuttering doors, cancelling vendor orders, and laying off workers. Neighborhood businesses are hit even harder. Individuals who have contracted the virus due to their job or work environment are beginning to look for compensation, and medical professionals are trying to treat a disease they’ve never seen. Schools and students are facing a year without a graduation ceremony, and even small-scale events will have to be cancelled or postponed. International event cancellations stretch into the summer and beyond. Life is on hold. Meanwhile, all the policies that insurance customers have to protect against these situations are coming into question.

But money and industry aside, it’s the human toll that is truly sad and staggering. According to some experts as many as fifty million Americans could contract the virus. That’s a worst-case estimate. But even if numbers match an “average” flu season we’re hearing that COVID-19 could land one million people in hospitals and account for $30 billion in related medical costs. And that’s on top of the expense of an average flu season. It goes without saying, then, that the exponentially higher quantity of serious medical claims could easily mean that health insurance providers will have to dip into reserves to cover the costs. Coronavirus payouts will be varied and vast.

Policy vs. Reality

Business owners who took the time and effort to protect against big what-ifs are hoping that their insurer will help them to recover. But as the effects of this virus spread across the nation and businesses are urged or ordered to suspend operations, claims are going to balloon––things could play out differently than anticipated. Policy language is detailed, and depending on the precise language of a business’s policy, shutting down operations to evade an oncoming virus might not fall into the insurer’s definition of “direct physical loss.” Business interruption claims could come into dispute.

A somewhat more immediate concern is actually contracting COVID-19. For those who might have been exposed and infected while on the job, it’s understandable that worker’s compensation would be their go-to recourse. But as details are hashed out, the heavy weight will lie on insurance companies to determine whether workers can realistically claim and receive compensation. Some states have already given preliminary guidelines, and we’re sure that more will follow in this ever-changing situation. As healthcare workers’ health and welfare are increasingly at risk, heightened employer liability is another by-product of an industry overwhelmed.

Insuring “Worst Case”

Since this is a crisis of extremes, we can’t leave this topic without touching briefly on the absolute worst outcome of any pandemic––a life cut short. Loss of life will always eclipse loss of work or resources. And if global models tell us anything, it’s that the potential for infection is high, and the death toll for this virus is beyond what we could have imagined. For individuals who succumb to the virus, life insurance and other policies are their key financial legacies––we’ll likely see the life insurance industry hit hard too.

In anticipation of the pressure that a spike in claims will put on these insurers, there’s some stress testing underway in the markets. Coronavirus has single-handedly increased financial market volatility. Combined with a plunge in interest rates and other financial variables, stability is less than sure. These outside forces that affect insurance companies’ strength are unique, complex, and unpredictable and that’s where the worry lies.

Insurance in the Time of Crisis

In our ideal outcome, all the mechanisms we’ve put in place to protect what we value and who we love kick into gear and do what we imagine they will. But as we should also know by now, things don’t always go according to plan and a pandemic changes life as we know it.

The inevitability of high volumes of detailed claims is just one reason why insurers are feeling the weight of this crisis. Remember that agencies and agents are also subject to CDC and local guidance and often have to switch up their operations to stay compliant. Operations could be running at full tilt, but radically outside of the norm. All the while, they’ll need to ensure that clients are cared for, claims are filed, and that day-to-day business needs are met.

Agents will be handling claims for customers who are anxious, worried, and upset. In the face of uncertainty, it can feel that all bets are off. And in a crisis like this, where a business is staring down the possibility of closure, or an employee is facing a major loss of income, typically honest people could feel justified in bending truths to ensure their best outcome. Let’s be clear: fraud is inexcusable. But it could be possible that this industry that fights so hard against fraud is actually guilty of fostering it.

At every turn consumers are told by attorneys, competing insurers, and countless other sources that insurance companies are selfish and aren’t out to help customers. Broadly sweeping statements often begin with a kernel of truth. And if claimants feel that they aren’t treated fairly and that insurance providers are only looking to lower payouts in a time of crisis, they’ll feel betrayed. Dishonesty could follow. That’s not taking into consideration the countless criminals who prey on uncertainty. And like this heinous virus, insurance fraud can grow and get out of control if not checked.

Healthy Insurance Is Key

We’re hard-wired to recognize risk in all its manifestations, and this pandemic has us on high alert. It’s almost inconceivable that one, lone factor could deeply affect every aspect of the insurance world. But here we are. And with much bigger things at stake, the situation can easily be overwhelming.

Communication and collaboration have always been vital to a trusted client-agent relationship. But now, they’re more important than ever as we all work through this together. It’s the agents’ and agencies’ job to know what clients are protected against and to educate their customers. It’s the customer's responsibility to understand their policies and work with their agent. And it falls on insurance companies to hold up their end of the deal. What that means will vary––the frenetic atmosphere created by a pandemic tends to muddy the waters. But a case-by-case determination could emerge as the common default guideline. And as the infection spreads, we could see redefined terms––it will be harder to make sense of what was once common.

At some point, we’re going to have to come together and work as an industry to reinvent this pillar of modern life that many have come to distrust. Now is the time to work for each other, for our clients, our agents, and our communities. Solid relationships will make all the difference once the dust clears.