The Canadian governments, both provincially and federally, have taken many steps to assist different industries survive the economic downturn caused by the coronavirus (COVID-19) pandemic.
As of yet, none of these measures have been directly aimed at assisting the insurance industry. An industry which will, no doubt, be called upon to provide indemnity for claims regarding COVID-19, some of which may be successful and considerable in value. Even without the prospect of paying out successful claims, the very likely increase in the amount of claims will put a stress on the industry generally, including brokers, claims managers and underwriters.
During a time when it is difficult for businesses to continue as usual, insurance companies will be no exception and will undoubtedly struggle with the influx of new claims and the difficulty in assessing losses that are unlike any insurers have faced before. Like most other businesses, insurers are implementing work from home strategies or potentially facing temporary layoffs, when the reality is that even more claims processing will be required than before the pandemic.
Insurers have been designated an essential service, making business continuity a primary concern during a difficult economic period.1 Such a declaration means insurers have been determined to be a service consumers rely on in their daily lives; they are essential to preserving basic societal functioning. As an essential service, insurers must be able to continue to operate at a high level and will be forced to incur costs in order to so, making it particularly challenging for insurers to implement cost-cutting measures.
Many US states have already begun to address the needs of insureds, as outlined below, although there has been little focus on assisting insurers. Given the anticipated strain on insurers, it is critical that Canadian regulators consider ways in which to assist the insurance industry with facing the new challenges that have come with COVID-19. Such considerations are necessary to ensure the survival of the industry as a whole.
Summary of Steps Taken in United States
On March 26, 2020, the Commissioner of Securities & Insurance in Montana, Matthew M. Rosendale, wrote to insurance companies outlining recommendations for insurers to assist the citizens of Montana with the ability to maintain their insurance coverage. These measures are not to intended assist the insurance company, but rather the insureds they serve:
- Flexible payment solutions for families, individuals and business, providing additional time to make payments and allowing grace periods to delay premium payments;
- Suspending premium billing for small business that have been shut down or severely reduced, for a specific number of days or billing cycles;
- Waiving insurance premium late fees;
- Pausing cancellation of coverage for motorists due to temporary non-payment and policy expiration;
- Expediting/expanding automobile coverage to allow personal vehicles to be covered while delivering food, medicine, or other essential provisions for commercial purposes; and
- Streamline administrative processes and paperwork to ease consumer burden and facilitate continuous coverage.
The California Insurance Commissioner issued a notice to all insurance companies stating that the Department of Insurance has questions relating to "business interruption" coverage. The department stated that it wants to understand the number and scope of coverages in effect and the approximate number of policies that exclude viruses. In order to understand this, the department issued a data workbook to collect company responses to the Commissioner's request for information. Each insurer should provide:
- How many policies are covered under each coverage identified (business interruption, civil authority, contingent business interruption and supply chain coverage);
- Out of these policies, how many fall under business with more than 500 employees, or alternatively, meet the insurer's definition of a large business;
- Out of these policies, how many fall under businesses with less than 500 employees, or are defined as a medium business; and
- Out of those with less than 500 employees, how many fall under business with less than 100 employees, or are defined as a small business.
On March 20, 2020, the Arkansas Insurance Department released a bulletin to all insurance companies providing them with notice of three new policies relating to COVID-19. The first requests that all insurers provide the department with a contact person designated to field consumer questions during the pandemic. Since it is understood that insurers may have a limited or otherwise adversely impacted workforce available, there may be calls to the department when insureds are unable to contact their insurer through regular means. The department will field these calls and approach the contact person with the consumer's concerns.
The second states that all insurers must assess and review their plans for continuity of operations and seek to mitigate the risks to policyholders and claimants. The Commissioner advises all insurers they must continue to adjust claims as expeditiously as possible in compliance with regulatory frameworks.
Finally, to assist citizens, the department issued a 60 day moratorium on cancellation/non-renewal of policies for non-payment of premiums for those Arkansas residents diagnosed with COVID-19.
On March 23, 2020, the Arkansas Insurance Department released a second bulletin to all insurance consumers and insurance providers regarding business interruption insurance and COVID-19. The bulletin outlines different common coverage clauses that could related to COVID-19 and states that the Arkansas Insurance Department has reviewed the ISO endorsement forms relating specifically to Business Interruption Insurance for COVID-19 and has approved them should insurers wish to adopt and file them with the department.
The Office of Insurance Commissioner in Washington issued an Emergency Order to all insurers authorized to transact property and casualty insurance. This order mandated that, between March 25, 2020 and May 9, 2020, all Regulated Entities (as defined in the order) shall provide grace periods for nonpayment of premiums and shall waive all applicable fees or charges associated with nonpayment. In addition, for the same time period, no insurer shall cancel a policy issued for nonpayment of premium, unless specifically directed to do so by the insured.
The Insurance Department of Connecticut issued a bulletin to all their insurers requesting that all insurance companies provide insureds with a 60-day grace period for insurance premiums preventing policy cancellation as a result of nonpayment of premiums.
The bulletin also request all agents, brokers, and others who accept premiums on behalf of insureds take steps to ensure customers have the ability to make payments through alternate methods that do not require in person interactions, such as online payments.
The Department of Commerce and Insurance issued a bulletin to all insurers advising that for all domestic insurance companies, all annual statement supplemental filings due on April 1, 2020 will be considered officially filed with the Department when filed online with the NAIC. For 2020, any requirements to send signed hard copies of annual statement supplemental filings are optional.
Additionally, for all other filings normally filed via mail, such filings should be made electronically with an electronic signature. Notarization of documents is not required; however any document normally required to be notarized should be signed and scanned by the appropriate individual and submitted as a PDF.
Conclusion on United States Steps Taken
Most of the measures taken in the United States focus on protecting the insurance consumer, with little focus on the insurer. Only the bulletin issued by Arkansas acknowledges that insurers are likely operating with an impacted workforce and an increase in business. The Missouri bulletin sets out proactive steps to make operations easier for insurers, but otherwise the actions of regulators are aimed at the consumer. The grace periods and moratoriums are helpful steps to protect consumers, but they limit income for insurance companies facing high demands on their workforce. This imbalance should recognized and addressed more effectively by regulators
In Canada, insurance companies are regulated at the federal and provincial level.2
The following province/territories have not yet released any updates regarding COVID-19 or measure to support either the insurance consumer or provider at this time: 3 Manitoba; Alberta; New Brunswick; Nova Scotia; Prince Edward Island; Northwest Territories; Nunavut; and Yukon. The Canadian Council of Insurance Regulators has also not yet issued a statement in relation to COVID-19.
The BC Financial Services Authority has implemented its business continuity plan and requires that all regulated entities make fee payments electronically or through wire transfers. Otherwise, it has not yet released other measures.4 The Insurance Corporation of BC has also added measures to allow insurance renewals by phone and email, allowing for electronic signatures, rather than the usual requirement of in person renewals.5
The Saskatchewan Financial and Consumer Affairs Authority has also allowed electronic payments.6 In addition, the Saskatchewan Crop Insurance Corporation has extended its program contract deadline to allow local farmers more time to apply, make changes to, reinstate or cancel their contracts.7
The Ontario Financial Services Regulatory Authority is deferring the issuance of invoices for fee assessments payable under Fee Rule 2019-01 and Deposit Insurance Reserve Fund premiums. Any invoices already issued to insurance brokers for F2020-21 fees are withdrawn. The deadline for license renewals for insurance agents is extended for 60 days. Additionally, they have provided guidance for insurance companies to use telephone, digital or electronic forms for holding virtual annual meetings.8
The Newfoundland and Labrador government issued a bulletin which includes the following information for insurance adjusters, agents and brokers:9
- Insurance, Adjusters, Agents and Brokers Act Section 12(1) states, a license remains in effect, subject to the filing of annual reports and payments of an annual fee as prescribed by the Minister, and subject to the qualifications and the requirements of the Act and regulations until it is suspended, revoked or cancelled under the Act; and
- The Superintendent will not be cancelling any licenses during the period of the public health emergency as issued by the province's Chief Medical Officer. To ensure there is no back log of mail and to ensure adequate security for payments required for licenses and renewals, the Financial Services Regulation will suspend the processing of applications for new licenses, license renewals and annual filings. A further bulletin will be issued once the Financial Services Regulation Division is back in regular operation and license and renewal processing is re-established.
On March 27, 2020, the Office of the Superintendent of Financial Institutions issued a letter to federally regulated insurers stating that it is taking steps to allow institutions to focus on their resilience efforts, including setting expectations of mortgage insurers related to payment deferrals and suspending requirement for institutions to provide semi-annual progress reporting on IFRS 17.10
The Canadian Taxi Association supports the MPP for Humber River-Black Creed in Ontario who called for insurance relief for the ground transportation industry. Taxis have been declared an essential service and are requesting an auto-insurance grace period among other changes to their insurance policies.11
While not a regulatory issue, insurers should also be aware of the wage subsidies offered by the federal government. If mandated grace periods are implemented or requested, and these lost premiums result in a loss of income of 30% or greater, qualified insurance companies may be eligible to apply for coverage of up to 75% of their employees' wages.12
As seen in the long list above, most insurance regulators in Canada have not yet taken steps to deal with the COVID-19 pandemic as it relates to insurers. However, grace periods are among the requested action for economic relief.
With working from home becoming increasingly necessary, following suit with the steps taken in Missouri makes sense for Canadian insurance regulators. The allowance for electronic operations should be implemented across the country.
In British Columbia, allowing electronic signatures was not done by amending the regulations but rather by the government allowing a variance to forego the need for a signature on a temporary basis.13 Though this measure does not assist with the financial challenges facing insurance companies it does allow for improved business continuity and safer environments for employees.
The federal government should also consider deferring tax collection based on premiums paid. This is especially true if any grace period/moratorium measures relating to premium payment are implemented in Canada. Though grace periods are a positive measure for consumers, they limit the cash flow for insurance companies at a time when it is crucial to keep their business intact and operational.
Finally, delaying timelines or relaxing standards for regulatory requirements, such as deadlines for submission of annual reports or original signature requirements should be implemented to assist with business continuity for insurance providers as an essential services.14 Though they differ amongst provinces, each regulatory system generally requires a report showing the condition of the insurer's affairs in the previous year. Delaying any upcoming deadlines will allow insurers to focus their efforts on claims rather than preparation of annual reports.15
Those provinces which require annual licenses and deposits should delay any required payments of those fees and deposits.16 Similar to the grace period for consumers, a grace period for the insurers is a reasonable measure.
To date, the effects of the economic fallout caused by COVID-19, and the attempts to mitigate those effects, have focused on insureds. However, in order to ensure that the insurance industry survives, there must also be equal focus on the financial interests of insurers.
Underwriters should prepare themselves for the measures we have seen implemented in the United States to be implemented in Canada. In order to achieve a more balanced approach to the interests of insureds and insurers, those in the industry should consider reaching out to their respective regulatory bodies to push for more insurer-focused protections. These steps are arguably necessary to protect and preserve the financial position of insurers, which, in many lines of business, was precarious even before the pandemic. There is little value to an insured in having an insurance policy if it is not worth the paper it is written upon.
15. Insurance Law in Canada "Regulation of the Insurance Industry"
16. Insurance Law in Canada "Regulation of the Insurance Industry"
Article originally published on 20 April 2020
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