Global ratings agency AM Best has released a report warning that two months of retroactive insurance coverage – something several US states are considering imposing on insurers through legislation – could halve the amount of capital and surplus the country’s property and casualty (P&C) industry holds.
The agency predicts that insured business interruption losses for firms with less than 100 employees currently amount to between $150bn and $200bn each month.
If paid by the insurance industry in claims, this amount would wipe out between 37% and 50% of the industry’s surplus, which AM Best said would drive many to insolvency, as well as cause a decline in equity valuations and the deterioration of credit conditions.
“In reality, small to medium-sized regional commercial writers with concentrations in BOP (business owner policies) and CMP (commercial multi-peril) will be hit the hardest,” its report said.
“For every large company that survives the loss, there would be multiples of smaller insurers who would be insolvent.”
Currently, seven US states have filed bills that would require insurers to pay for business interruption coverage – regardless of whether pandemics were a covered peril under the policy terms – and one bill has been tabled at the national level in Congress.
These states are New Jersey, Ohio, Massachusetts, New York, Los Angeles, Pennsylvania and South Carolina.