Coronavirus: Why Is Insuring Everyone So Damn Complicated
PSA: I am not an analyst nor an expert on the matter. Please consider this piece of writing as what it is really: a take on what insurance coverage should look like in the events of a pandemic like the one we are experiencing. For more information about the crisis, please consult official resources concerning your country, such as coronavirus.gov for the U.S. or gouvernement.fr/info-coronavirus for France. Thanks.
Apart from life-insurance providers, general insurance companies are undeniably also under the spotlight these days over the coverage of their policies holder towards COVID—19-related expenses; which essentially affects the entire population worldwide.
While covering and refunding every individual and small businesses would add to an enormous amount of money some of these companies might not be able to handle, the people who thought that the hundreds of dollars they had been pouring over the years into their premium credit cards and various insurance policies would provide them better coverage in a crisis, may soon become disillusioned with the admissibility of claims and the reality of the indemnification; leaving us with the debate about what can be done, who has to pay and if it is really impossible to make things right and, in the meantime, improve the system overall. . .
First, we need to differentiate two kinds of insurers: general insurers and life insurers. While the latter sector is obviously more pressured and most of the time able to cover those claims in order to maintain their image, but also because of the premiums they charge and because only 59% of Americans are currently holders of such a policy (Sarmah-Hightower, 2020), the industry of general insurers, on the other hand, is another story.
Indeed, by learning their lesson with the comparable SARS epidemic outbreak that happened back in 2003, they introduced exclusion clauses for a wide variety of cases, including communicable diseases and pandemics, into most of their non-life policies such as business interruption and travel insurance.
David Sampson, president and CEO of the American Property Casualty Insurance Association, said in a statement that “pandemic outbreaks are uninsured because they are uninsurable.” Indeed, the industry has warned that it could crater faced to the magnitude of COVID—19-related claims. Projections estimate small businesses losses of monthly income between $255 billion and $431 billion as a result of the pandemic while monthly premiums for commercial property insurance only come to a total of $6 billion (Elejalde-Ruiz, 2020).
Those estimations only apply to the business part and exclude all recreational expenses covered by specific “worry-free” policies often contracted for little to no cost on the travel agencies or airlines websites. The billions of dollars spent on holidays, work travel or abroad studies remain at the mercy of the insurers and the companies themselves, to do what they can, and the reality is: they cannot.
In Europe, airlines refuse to refund customers for their tickets and a close source in the industry has been told that some of the airlines, like the prominent Lufthansa, is not resilient enough to provide refunds to every single customer without declaring bankruptcy (Coupy, 2020). While Lufthansa is losing over to $1.5 million every hour, Air France-KLM announced in an internal note that they lose $30 million each day, which would leave them just enough to live through the start of June even when excluding any refunds made to the customers (Trévidic, 2020).
Granted precedent concerns about the industry are comprehensible, customers are still the ones being left out. General insurers do not share the same liability than life insurance and have protected themselves against those events and refuse to accept claims even though the insurance industry maintains an $800 billion surplus to cover all U.S. home, auto, and business sectors (Elejalde-Ruiz, 2020).
With 180 million cardholders and more than a billion credit cards in circulation in the U.S. in 2018 (Peter, 2020), the average American carries 2.35 credit cards (Resendiz, 2018); meaning they also have as many supplemental insurance policies. Those policies may come in addition to a general one and for instance a specific one bought with a travel agency. Many people derive peace of mind from conjunction of such policies, often resulting in multiple layers of protection against unexpected events.
What they do not know is that an event of the size of the coronavirus pandemic, as foreseeable as it may have been (Sandman, 2007), is such incredibly hard to price that it is most often excluded from insurance coverage. It is often when faced with the worst that we come to learn about what is truly what. Travel and accommodation as well as business insurance policies are not an exception from this general truth.
France, for instance, has seen one of the major consumer associations—UFC-Que Choisir—serving formal notice against fifty-seven airlines, accusing them of not refunding tickets for flights canceled due to the COVID—19 pandemic measures. While some of them may issue travel vouchers if you decide to go through a very lengthy and thorough process specially in place to dissuade those actions, these vouchers are only valid for specific dates and can expire very quickly. “It’s not up to consumers to pay the cost of the current crisis” said the association’s spokesperson (Maussion, 2020).
European laws go further and enforce the right to request a classic refund within seven days from your airline by citing articles 5(1)(a) and 8(1)(a) of EC Regulation No. 261/2004. If the airline does not respond or does not agree, court proceedings or the use of Alternative Dispute Resolution are possible and people can even conjointly hold their credit card insurance liable (Brignall, 2020).
Furthermore, if you account for the massive aids given out to big companies—including $25 billion for U.S.-based airlines (Lesliejosephs, 2020) and about $15 billion for European ones (Laville, 2020)—to help them to stay afloat, you start to feel less sorry and more intrigued to the extent of which government aids can go.
Moreover, the idea of general insurers offering some kind of relief during these times is not so remotely idealist as model French general insurer MAIF gave back $110 million to their policyholders, justifying the fact people drove less with the quarantine. Other ones should follow the example and take action now more than ever.
Ultimately, the global lack of support from those private general insurers but also the government failure to provide quick and effective monetary support, apart from multinational companies aids, drives the customer down to hold all the costs of this crisis (Packer, 2020).
I really think insurers, governments and big companies should try to at least find a middle ground and try to do what is right in the eyes of the consumers. Relief is provided to the industries that need them the most but not necessarily the consumers, even though are effectively the ones with the power to relaunch the economy. If they have no money on hands, there is no business and there are no taxes to collect.
It’s time for the industry as a whole to team up and come with a real plan that benefits both the consumers and businesses. And also, at this point, one can only hope that the industry will shift to provide more transparency and coverage for inevitable forthcoming pandemics and learn their lesson in the way that does not only protect themselves but also their loyal policyholders. . .
References:
Peter, B. (2020, January 3). Number of Credit Cards and Credit Card Holders. Retrieved April 5, 2020, from https://wallethub.com/edu/cc/number-of-credit-cards/25532/
Resendiz, J. (2018, December 3). Average Number of Credit Cards per Person: 2019 Card Ownership Statistics. Retrieved April 5, 2020, from https://www.valuepenguin.com/average-number-credit-cards-per-person
Sandman, P. M. (2007, February 22). A severe pandemic is not overdue—it’s not when but if. Retrieved April 5, 2020, from https://www.cidrap.umn.edu/news-perspective/2007/02/severe-pandemic-not-overdue-its-not-when-if
Elejalde-Ruiz, A. (2020, April 16). Business owners bleeding money during the coronavirus shutdown may expect insurance to cover their losses. But often they’re in for a shock. Retrieved April 28, 2020, from https://www.chicagotribune.com/coronavirus/ct-coronavirus-business-interruption-insurance-lawsuits-20200416-b5kl3xaweja7refbqfr4cpkp3u-story.html
Sarmah-Hightower, S. (2020, February 26). Life insurance and being underinsured. Retrieved April 28, 2020, from https://www.insure.com/life-insurance/life-insurance-underinsured.html
Trévidic, B. (2020, April 9). Coronavirus : Lufthansa perd un million d’euros par heure et prépare des coupes claires. Retrieved April 28, 2020, from https://www.lesechos.fr/industrie-services/tourisme-transport/coronavirus-lufthansa-reduit-son-offre-long-courrier-de-20-en-prevision-dune-reprise-en-demi-teinte-1193021
Coupy, G. (2020, April 28). Airbus technician.
Brignall, M. (2020, April 24). Coronavirus travel shutdown: what are your rights? Retrieved April 28, 2020, from https://www.theguardian.com/money/2020/apr/24/coronavirus-travel-shutdown-rights-voucher-refund
Maussion, F. (2020, April 28). Coronavirus : UFC-Que Choisir met en demeure 57 compagnies aériennes sur le remboursement des vols annulés. Retrieved April 28, 2020, from https://www.lesechos.fr/industrie-services/tourisme-transport/coronavirus-ufc-que-choisir-met-en-demeure-57-compagnies-aeriennes-sur-le-remboursement-des-vols-annules-1197898
Lesliejosephs. (2020, March 24). Lawmakers closing in on deal for $25 billion in cash coronavirus aid for airlines. Retrieved April 28, 2020, from https://www.cnbc.com/2020/03/24/coronavirus-stimulus-bill-lawmakers-near-deal-on-25-billion-in-grants-for-airlines.html
Laville, S. (2020, April 22). Coronavirus : airlines seek €12.8 bn in bailouts without environmental conditions attached. Retrieved April 28, 2020, from https://www.theguardian.com/world/2020/apr/22/airlines-seek-128bn-in-coronavirus-bailouts-without-environmental-conditions-attached
Packer, G. (2020, April 21). We Are Living in a Failed State. Retrieved April 28, 2020, from https://www.theatlantic.com/magazine/archive/2020/06/underlying-conditions/610261/
Chocron, V. (2020, April 2). Coronavirus : les accidents de la route sont en forte baisse, la MAIF rend 100 millions d’euros à ses assurés. Retrieved April 28, 2020, from https://www.lemonde.fr/economie/article/2020/04/02/coronavirus-les-accidents-de-la-route-sont-en-forte-baisse-la-maif-rend-100-millions-d-euros-a-ses-assures_6035337_3234.html