Insurers in talks to deliver aid to businesses on behalf of US government

The US government is in talks with insurers about using their infrastructure as a means of funnelling huge sums of aid to businesses distressed as a result of coronavirus, Insurance Insider understands. 

The issue of whether insurers would be willing to compensate insureds for business interruption (BI) losses not covered under typical policy forms has already flared up, with a New Jersey bill recently floated and pulled and a letter urging a similar outcome written by 20 members of Congress.  

Insurers pushed back hard on the request that they extend business interruption cover retroactively, but sources said that discussions have been held with the federal government about using their apparatus to distribute taxpayer money to crippled businesses. 

It is understood that the talks touched on the idea of having businesses submit claims to their insurers as if BI resulting from coronavirus was covered. Insurers would then adjust those claims as normal and determine the appropriate claims payment, which would be funded by the government. 

This kind of system would resemble the existing mechanism used for the National Flood Insurance Program. 

Sources said that it is not clear if the talks will yield any concrete outcome.  

Industry trade bodies seem to have made an oblique reference to the work being undertaken in their letter to the US lawmakers that had requested that they extend coverage. 

“Our organizations stand ready to work with Congress on solutions that provide the necessary relief as soon as possible,” the note said. 

The government is known to be looking for efficient mechanisms to distribute cash quickly as it fights to minimise the economic impact of coronavirus. 

The issue of whether lawmakers could try to force insurers to pay out on property policies despite the lack of physical damage burst through the surface earlier this week when a bill was floated in the New Jersey State Assembly that would have obliged insurers to pay out regardless of exclusions. 

The news roiled markets and was one of the factors behind losses for (re)insurance stocks well ahead of those seen by the broader markets on Wednesday. 

The stocks registered huge declines because if insurers were obliged to pay out under these policies, losses would likely total hundreds of billions of dollars, resulting in widespread insolvencies. 

“This move would bankrupt the insurance sector,” one source said. 

In actuality, there is very little likelihood that such an issue would ever be dealt with at state level, with the only likely home for any such legislation being the US Congress. 

However, industry sources stressed that such a law would face a very high likelihood of being struck down in the courts as it breaches the principle of the sanctity of contracts, which is enshrined in the Constitution. 

A Treasury representative did not respond to a request for comment. 

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