By its very definition, insurance coverage is planned protection against both the expected and the unexpected. Life insurance clearly provides financial security in the event of death, which of course is an eventual certainty. But at the same time, it also provides for circumstances in which someone’s passing is early or sudden. On the other hand, something like flood insurance provides protection against a ‘known unknown’—a potential threat that can be prepared for to some degree through intelligent analysis of risk. As such, insurance is a generally accepted method of handling potential risk in the business world. Pay a little now, and get what you need to cover the cost of the unexpected later, when and if you need it. Co-op, condo, and HOA properties and owners are well acquainted with this business practice and carry several types of insurance to cover all kinds of possible emergencies. So… how does that shake out in the current COVID-19 crisis?
Responding to the Unknown
While insurance policies are forward-facing—meaning they attempt to manage future risk—they are based on past data, such as how probable similar events were in the past, and how past experience can help us manage the same or similar circumstances in the future. However, when it comes to something as unprecedented as the current pandemic, insurance carriers are in new and uncertain territory—often to the detriment of those looking for coverage.
Ryan Fleming is a partner at JSG Insurance, with offices throughout the Northeast. He explains, “Insurance policies in general aren’t designed to respond to something like this. It’s triggered by a sudden, accidental, unexpected occurrence. In this case, with this type of pandemic growth, policies aren’t really designed to cope with it.”
Insurance actuaries—the statistical scientists who calculate and interpret risk on behalf of insurance companies to help them set premiums and determine the extent (and limits) of coverage—calibrate new crises into risk analysis going forward. As carriers re-evaluate potential claims from COVID-19 and any future pandemics, the actuaries will have to figure out what such new variables mean in terms of risk exposure—and, by extension, coverage options.
“Many carriers took the experiences of the SARS and ebola [outbreaks] and used them to write some verbiage into policies, so that insureds and insurers would be clear on coverage,” says Fleming. “Now, other carriers that were a little less aggressive in their verbiage are going to have to see how the claims come across the table and determine how to resolve them.”