Another day of chaos in the country and more developments critical to your clients and our industry.
Senate Majority Leader Mitch McConnell says Congress is “moving at warp speed” to get financial relief to clients amid the pandemic. On our team, and in consultation with all of the major players within the industry, we have been principally focused this week on the question of whether (and how effectively) the existing business interruption mechanism within property policies can be utilized as the means through which relief can be provided to clients.
Today, the Wisconsin Manufacturers and Commerce Association held a conference call with Senator Ron Johnson (R-WS) as the speaker. The main item of note was he mentioned that Susan Collins (R-ME) has been discussing potential legislation that would mandate that business interruption policies cover COVID claims, and that the Federal government would 100% reinsure the claims. Senator Collins feels that insurer claims adjusters would be more efficient at processing these claims. Senator Johnson indicated on the call that he supports this idea.
Throughout the week the carrier community had expressed strong opposition to any retroactive provision of BI coverage, even if fully funded by the federal government. However, late last night, two of the carrier trade groups – the American Property Casualty Insurance Association and the Reinsurance Association of America – proposed the creation of a small business compensation fund (small business being described as 500 and under) that would have limited private insurance carrier and agent/broker engagement. The proposal is based on the 9/11 Victims Compensation Fund.
Here’s the information on the proposal as of now, which is expected to change even as of this writing:
Create a federal financial facility under the stewardship of Treasury (IRS) funded by the federal government under the jurisdiction of a Chair/Czar appointed by the president and authorized by Congress.
Federal facility would process, make the sole determination for the validity and pay claims submitted by claimants. An immediate minimum payment or floor would be provided upon submission of a valid claim.
Claims criteria would include (1) business interruption losses based on factors such as maintaining a working employee headcount, economic and financial impact or lost revenue, and (2) employee indemnity and medical benefits resulting from COVID-19 virus for employees that would not be covered by applicable workers compensation insurance.
With liability and confidentiality protections, commercial insurers that have provided business interruption (BI) or workers compensation insurance coverage would (1) contact policyholders in small businesses (as defined above) to seek concurrence with providing information to the Special Master, then (2) provide policy information to the Special Master for all commercial insureds with business interruption or workers compensation coverage, and (3) assist policyholders in the process of filing claims against the fund. Agent/brokers could assist their insureds in this process.
For small businesses without BI or not covered by workers compensation insurance coverage, claims may be submitted directly to and paid by the facility. A minimum payment or floor would be established for immediate payment otherwise the applicant would provide information required by the Special Master. A cap would be established.
So many questions arise instantly. What about the disparate treatment of small and larger businesses? What kind of protections are there for the industry? How difficult administratively will this be? How viable is the 9/11 Victims legislation as a model – considering it was for 3,000 families, and millions of businesses are impacted by the pandemic (and legal disputes continue today all these years later)?
We will be working deep into the night to help improve this proposal. We have consulted with scores of brokerage executives and The Council’s leadership, and while there is anxiety about the potential task, there has been an overwhelming sentiment of support for measures that bring relief to our clients as fast as possible.
It is unclear whether the “warp speed” McConnell is discussing will apply to this proposal, though we know that there is growing interest both on the Hill and within the Administration to utilization of the private BI model. Meanwhile, we have more information on who will benefit from the “Phase III” stimulus being considered in the Senate…