Three JAMS neutrals share their thoughts on how COVID-19 has affected the insurance industry
Few industries have escaped the effects of the COVID-19 pandemic. But for the insurance sector, the effects have been twofold. On the one hand, COVID has prevented insurance companies from carrying on business as usual. On the other hand, it forced those same companies, which were trying to adapt to a remote work model, to manage a flood of complaints related to other companies’ ability to do business. “Every business that had to close turned to their insurance, and if their business was impacted, they likely filed a business interruption claim,” says JAMS Neutral Cassandra Franklin. As a result, says Franklin, “an already understaffed industry was put in a position where it had to stretch even further.”
To complicate matters, business interruption coverage is usually attached to a client’s property insurance policy, and any loss associated with business interruption must be due to physical loss or damage to customer’s property. And with COVID, “There has been no physical loss or damage,” says JAMS Neutral Rebekah Ratliff. Thus, while policyholders argued that they had lost the use of their physical premises and should therefore be eligible for damages, from the perspective of the insurance industry, “there was no no cover for that”. In this case, says Ratliff, “the courts agreed. There have been thousands of such cases litigated in the United States, and in almost all of them the court has sided with the insurance company. Says Franklin regarding business interruption coverage for COVID-related losses, “It’s been a very tough road for policyholders.”
Business interruption is just one type of claim that has increased during the pandemic. Others are pandemic-related product discontinuation and event cancellation requests. Many entities with these types of claims – studios and production companies, and event organizers, respectively – have fared better because their policies were designed to protect them against these specific types of risks. For example, says Franklin, “When Wimbledon was closed because of the pandemic, they collected over $140 million from their insurance,” because they had taken out coverage for that exact eventuality.
In his practice, Ratliff noticed another type of claim: “cases of bodily injury resulting from negligence, due to an owner’s inability to fix something because he simply did not have the ‘money”. For example, she says, “I’m getting ready to see a case where people got burned in a hot tub at a hotel” because the hotel management cut short repairs. Ratliff thinks even this trend is COVID-related, as pandemic-related supply chain and personnel issues prevent owners from getting the supplies and labor they need to make needed repairs. .
As with all businesses, COVID has forced insurers to get creative with how to conduct their business. For example, when a customer submits a claim of any kind, the insurer usually sends an expert on site to investigate. But COVID-related shutdown orders have made this practice impossible. Insurers have therefore started to use drones. “Drones are now commonly used to adjust commercial property claims,” Franklin explains. “They send the drone and the drone films the damage.”
Insurers have also embraced the use of another technology to do business: virtual communication platforms like Zoom. In addition to using Zoom to connect their employees and communicate with their customers, insurers have also embraced its use for mediation and arbitration. “Before the pandemic, I had almost no virtual mediations or arbitrations,” Franklin says. “Now almost everything is virtual.”
It turns out that virtual proceedings offer significant advantages in insurance-related cases. Lawrence Pollack, neutral at JAMS, explains why: “From an expense perspective, from an efficiency perspective, insurers are seeing tremendous benefits from using these platforms.”
“When I was traveling for mediations as an adjuster,” Ratliff explains, “the company paid for my flight, hotel, and rental car, as well as a per diem” — which Pollack says often involved “one day to travel, one day to sit in the bedroom and wait for the mediator, and one day to go home. Virtual proceedings eliminate all that time and travel.
Eliminating travel does more than save time and money; it also allows key decision-makers on both sides of a dispute to participate in the proceedings. “With virtual procedures, they can perform multiple tasks at once,” says Pollack. “They understand what’s going on and participate at the appropriate times.” Ultimately, says Pollack, “They find it very helpful to be part of the process as it happens rather than having it relayed to them.”
In Pollack’s view, the use of virtual platforms represents “a sea change in the insurance industry”, and he predicts that the use of virtual platforms is “here to stay for insurance-related disputes “. Indeed, he believes that “it will really be an exercised option”. Franklin agrees: “The ability to have these high-level decision makers present is really a key factor. And if you redo everything in person, they won’t be able to attend. Moreover, says Ratliff, “statistics show that virtual mediations are just as effective. We settle as many cases as we were in person.
Beyond the use of drones and virtual platforms, Ratliff, Franklin and Pollack predict that the pandemic, as well as more recent developments, such as the war in Ukraine, will cause significant changes in the insurance industry. . “The insurance industry is constantly changing. He reacts to society. He reacts to business. It reacts to what the courts do,” says Pollack. Ratliff agrees: “I think we’re just the tip of the iceberg. We haven’t even seen what it will look like. In particular, the three neutrals expect insurers to offer new types of coverage.
Ratliff predicts that “there will continue to be new covers that we haven’t seen or considered before.” Pollack agrees, noting, “With COVID, with our economic situation, with our international situation, insurers are going to adjust the products they sell and come up with new products.”
For her part, Franklin wonders about production and event cancellation insurance, “who (if anyone) will buy pandemic insurance? And, if they do, how will they manage their liability in connection with these coverages? Higher premiums? Sub-limits? Policy wording? Reinsurance? All the foregoing? It’s just going to be a really interesting landscape as it continues to evolve.
One thing is certain: as our world becomes more complex and unpredictable, insurers will continue to thrive. “The beauty of insurance is that it’s about managing risk. And once you’ve identified the risk, then it’s a question of what product can be sold to address it and at what price,” says Pollack. Ultimately, says Ratliff, “Insurance touches every industry in one way or another.”