We are living in unprecedented times due to the rise of the global COVID-19 pandemic. It is touching every aspect of the American life and turning it on its head, shifting lives hour by hour, and day by day, as the news rolls in. One aspect of life that is particularly being affected, as Americans try and piece their new normal together, is insurance. Insurance companies rely on historical data to predict outcomes, claims, and premiums, but what happens when a novel virus sweeps the nation? Are insurance providers prepared to handle the fallout of COVID-19?
With over 605,390 Covid-19 cases confirmed by the Center for Disease Control (CDC) in the U.S. as of April 14, 2020, what does that mean for health insurance? While health insurance claims are expected to increase, there might not be as much of an increase as you would originally think. Due to limited health care resources putting a cap on claims, the number of claims will be limited by hospital capacities, health care supplies, health care workers, etc. With the large number of people sick, our health care system is bursting at the seams, which will ultimately put a cap on health insurance payouts.
Another concern with health insurance is it being tied to employment. With unemployment numbers hitting record highs, people are not only losing their jobs, but also their health insurance benefits during the COVID-19 pandemic. This is concerning because it is not just an individual health concern, it is a societal health concern. Due to the highly contagious nature of the virus, all people need to be treated or tested in order for everyone to recover, regardless of insurance. However, it is still a question on whether health insurance providers can meet the demands of this pandemic.
Business Interruption Losses
Another aspect of the American life that has been altered by COVID-19 is the closing of all non-essential businesses, required to close by government mandates. Retailers are closing and restaurants can only offer drive-thru and carryout services. How do these businesses financially recover? Many businesses are planning to rely on their business interruption insurance, but that might not be the most lucrative solution for COVID-19 losses.
Business interruption insurance is designed to cover losses in income as a result of a disaster. With one third of U.S. businesses having business interruption insurance, many feel prepared to recover from the loss of revenue. However, payouts are unlikely as most policies exclude viruses and pandemics, since the rewriting of policies in the fallout from the SARS outbreak in 2002. Another hurdle to receiving a payout on these policies is the problem of proving “direct physical losses” which is required to cash in on these policies.
About 22 million Americans are filing for unemployment, as of April 16, 2020, with numbers only expected to rise as the pandemic progresses. We, as a nation, are seeing record numbers of people applying for unemployment with numbers rivaling that of the Great Depression. The unemployment rate now is estimated to be about 20 percent and quickly rising. In an attempt to curb some of the economic losses, Congress has established the Coronavirus Aid, Relief, and Economic Security Act (CARES). Designed to lighten the load on individuals, families and businesses, this act is a $2 trillion relief package that is extending unemployment insurance benefits by 13 weeks with $600 increases in payments per week through July 31st.
Insurance is playing a more important role now, more than ever before, as Americans try to put their lives back together. As far as the long term affects from this pandemic, only time will tell. Not even insurance actuaries, can predict what life will look like after COVID-19. However, one thing is for certain, we will all be relying on one another more than usual, even if it is while remaining 6 feet apart.
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