The DC Council will be voting on Tuesday, May 5, 2020 on the "Coronavirus Omnibus Emergency Amendment Act of 2020." Section 2 of that proposal would essentially rewrite business income insurance policies and require the industry to pay for losses that were not covered.
This legislation impacts our entire industry, and we need to educate and inform DC Council Members about the negative effects that this would have on the insurance industry and your businesses in the District.
Please reach out to your DC Council member before the close of business on Monday, May 4, by phone or email (Click here for a list of DC Council members and their contact information).
Key contacts for the DC Council include:
DC City Council Chair
Council Member – Ward 5
Council Member – Ward 6
Another key contact is:
DC Attorney General
The message is simple – Ask Council members and the DC Attorney General to delete Section 2 of this bill (related to business interruption insurance) and explain why it should not be enacted.
The Big 'I' National has prepared a summary of the issue. Please click here to read more. We've boiled it down to a few key talking points for you, however, please use any of the information we've provided to communicate with the DC Council.
Key talking points:
- Nearly all insurance policies do not provide coverage for these losses, and insurers did not collect premiums to pay such claims. This legislation would force insurance companies to pay for losses that they did not agree to cover and that are not supported by premium, and this will jeopardize the solvency of the insurance system and threaten the ability of insurers to pay legitimate claims.
- The bill threatens the financial solvency of the DC insurance industry.
Update: The old version of the bill would have required payment to insureds with fewer than 100 employees, but the revised proposal raises that threshold to businesses with fewer than 250 employees. This change further expands the already significant financial impact of the proposal.
The American Property Casualty Insurance Association (APCIA) estimates that closure losses just for the D.C. small businesses with fewer than 250 employees targeted by this legislation could range from $300 million to $1.1 billion per month and this would be catastrophic for the industry. These numbers dwarf the premiums for all relevant commercial property risks in the key insurance lines for D.C., which are estimated at $16 million a month.
- This bill will produce significant premium increases for District residents. This proposal will force insurers to dramatically raise rates in order to cover the losses they actually agreed to assume and push carriers out of the district.
- This action is unconstitutional. Legislatively rewriting existing insurance policies runs afoul of the constitutional prohibition against the government impairing private contracts. This would be challenged and likely overturned in the courts, and it offers false hope to businesses in need.
- Most businesses do not purchase business interruption insurance. Even if this bill was somehow legal, it would not help most businesses in need. Only about 40% of commercial policyholders purchase this coverage, and it is purchased by an even smaller percentage (30%) of small businesses.
- Pandemics are uninsurable, and the losses are beyond what the existing insurance mechanism can cover. The federal government is the only entity able to provide the type and magnitude of financial assistance required.
- Insurance regulators oppose such proposals. The National Association of Insurance Commissioners has also noted that requiring the payment of claims that were not covered “would create substantial solvency risks for the sector, significantly undermine the ability of insurers to pay other types of claims, and potentially exacerbate the negative financial and economic impacts the country is currently experiencing.”
What can be done instead of this legislation?
The insurance industry and the business community are working on proposed federal funding that would be open to all businesses adversely affected by the pandemic and not simply the small minority that bought business interruption coverage that did not cover such risks.
The insurance industry is actively working with customers in need (by instituting moratoriums on cancellations and non-renewals, providing premium payment grace periods and refunds, etc.) and proactively educating clients about the federal financial assistance and resources that are already available