The COVID-19 pandemic has changed the insurance industry – and the world – permanently, and one expert believes the industry will respond well to the challenges set forth by this catastrophic event. AAIS’s Nicole Milos spoke with Fred Karlinsky, Co-chair Insurance Regulatory and Transactions Practice at Greenberg Traurig, about his views on the COVID-19 pandemic and the short- and long-term impacts the pandemic could have on the insurance industry.

Mr. Karlinsky said COVID-19 exposed a new and significant risk – coverage written specifically for business interruption due to a pandemic. While pre-COVID-19 business interruption policies specifically speaking to pandemics did exist, most businesses opted not to invest in them, leaving them vulnerable when the pandemic forced businesses to suddenly cease operations. He used the All-England Lawn Tennis Club, home of the storied Wimbledon tennis tournament, as an example of an organization who prepared for the worst. The All-England Lawn Tennis Club has bought business interruption insurance with specific pandemic language for 17 years and never had to use it…until 2020, protecting them from massive loss as they had to cancel the Wimbledon tournament. Mr. Karlinsky said he predicts more businesses will follow suit in buying pandemic insurance, and more options for commercial pandemic coverage will be available to help businesses prepare for future risk.

He said as these policies are developed, though, there will be intense debate as to policy language, particularly around what constitutes physical damage to a business to trigger
a claim payout. Insurance contracts and products will have to be evaluated in detail, and often on a case-by-case basis, moving forward as insurers, regulators and policyholders enter a post-COVID world. Mr. Karlinsky noted that he doubts retroactive legislation will
be past to help with the COVID-19 pandemic but said he feels in the future, state and federal governments might pass proactive rulings to protect both insurance companies and consumers.

Despite an industry surplus of more than $800 billion, Mr. Karlinsky doesn’t believe insurers should be solely responsible for all losses incurred during COVID-19, particularly when the losses weren’t covered under the pre-existing policies. He noted that placing the fiduciary responsibility directly on the shoulders of the insurance companies would cause intense strain on the industry. Straining the reserve and asking companies to pay out for all losses could cause some insurance organizations to go out of business, resulting in fewer product offerings in the market with higher premiums and less opportunity for businesses to obtain affordable commercial insurance…causing a ripple effect across
the economy.

Like others, Mr. Karlinsky noted the proposed federal pandemic backstop program modeled after the Terrorism Risk Insurance Act (TRIA) is something to watch but said it’s hard to compare terrorism and pandemic losses due to their unique outcomes, and that much more data and collaboration is needed to make the program beneficial. Despite this, he believes it’s a good common-sense approach to providing long-term government support for catastrophic loss. Similarly, he discussed the benefits of the National Association of Professional Insurance Agents’ COVID-19 Recovery Fund, which would provide faster relief for businesses and employees. Modeled after the September 11 Victim Compensation Fund, this fund would provide, among other benefits, short-term liquidity for businesses to help them pay their employees and keep their businesses afloat. Mr. Karlinsky believes both initiatives will help businesses and people recover from pandemic losses incurred.

Looking forward, Mr. Karlinsky believes the industry will aggressively prepare for future events like the pandemic, bringing new products, innovation, and creativity to solve the problems exposed during COVID-19. From new approaches to remote work to adjusted workers compensation, the industry will not be the same…but it will be stronger.

To watch the full interview with Mr. Karlinsky, please visit the VME library.