COVID-19 Effects on the Property & Casualty Sector

You might suspect that fewer drivers on the road because of COVID-19 would lead to safer conditions. In fact, motor vehicle fatalities are up roughly 30% since March of this year compared to 2019. If driving behavior is any indication of our collective consciousness, COVID-19 has, in some ways, made us riskier, not more risk-averse. To combat the litigiousness and disruption brought on by COVID-19, Property & Casualty insurers must remain flexible and empathetic.

*The number of auto insurance claims dropped due to fewer cars on the road, but the severity of claims increased substantially.

California attributes the higher lethality during COVID-19 to faster driving speeds and increased impairment. Between March and August, the state issued twice as many traffic tickets relative to 2019, with a 46% increase in speeding tickets given to motorists clocked above 100MPH. To make matters worse, The National Highway Traffic Safety Administration (NHTSA) released a study showing a higher prevalence of alcohol, cannabis, opioids, and antidepressants among fatally injured motorists. With the pandemic’s ubiquitous and long-lasting effects, a growing body of professionals credits the recklessness to increased stress and depression.   

Drivers aren’t the only people struggling. COVID-19 had a catastrophic impact on small businesses, retail stores, and fundamentally changed how consumers shop for products. Insurance companies, particularly those who sell life policies, anticipated a flood of online customer activity and quickly shifted to bolstering digital capabilities.

Insurers report a rise in business interruption claims, particularly among smaller clients for lost revenue due to mandated non-essential business closures. Insurers have rejected these claims as they do not amount to physical losses. As a result, some state governments have issued emergency proclamations that COVID-19 causes property loss and damage, and several state legislatures have retroactively expanded coverage. A Missouri federal judge ruled that a group of restaurants and hair salons could sue their insurer for business interruption losses. The judge affirmed the plaintiff’s argument that coronavirus particles were a physical substance attached to their property that caused damage, rendering the business unsafe and unusable. The insurer’s policy covered ‘All Risks’ with no exclusion for losses caused by a virus. 

*Some policies contain clauses excluding loss from viruses and bacteria, driven by other epidemics such as SARS and Ebola. For that reason, several insurance carriers won similar cases in Michigan, New York, and Washington, DC.

Given this information, how should P&C insurers react to the prolonged uncertainty, riskier driving tendencies, and rise in class action lawsuits brought on by COVID-19?

First, carriers should analyze coverage disruption on a case by case basis. This limits extra-contractual exposure, leads to fewer accusations of bad faith, and enables greater focus on policy facts and language. Second, insurers should remain empathetic now more than ever and take steps to address the changes in customer behavior during COVID-19. For instance, P&C insurers might consider cutting rates to compensate for high unemployment and falling credit rates while also investing in data analytics to anticipate a rise in fraudulent claims.  

Finally, successful insurers will adapt their coverages and marketing to address the impacts of COVID-19 accurately. Whether that entails lower auto premiums or coverage for personal cars used in food delivery, carriers must remain collaborative and compassionate to be competitive in this uncertain environment.

Author: Gillis Lynn, Consultant Fletcher/CSI