U.S. Treasury's Stance on Business Interruption Insurance Amid COVID-19 Pandemic

U.S. Treasury's Letter to Congress

On May 8, the U.S. Treasury Department sent a letter to members of Congress, expressing concerns about proposals to retroactively alter business interruption (BI) insurance policies to cover losses from the COVID-19 pandemic. Principal Deputy Assistant Secretary for Legislative Affairs Frederick Vaughan argued that such proposals could jeopardize the insurance industry's ability to serve policyholders and potentially lead to industry insolvency.

Contractual Nature of Insurance Obligations

Vaughan emphasized that while insurers should pay valid claims, these proposals fundamentally conflict with the contractual nature of insurance obligations. He highlighted that such changes could introduce stability risks to the industry. The Treasury Department is committed to collaborating with insurer groups, federal lawmakers, and states to address losses attributable to the current and potential future pandemics.

Industry Impact and Future Collaboration

The insurance industry has faced significant challenges due to the pandemic, with BI claims alone amounting to billions of dollars. According to the Insurance Information Institute, BI claims related to COVID-19 could reach $431 billion in the U.S. alone. This financial burden underscores the importance of maintaining the stability of the insurance industry. The Treasury's commitment to collaboration aims to find a balanced approach that protects both policyholders and the industry's financial health.

For policyholders, it is crucial to understand the limitations of their BI coverage and consider additional insurance options to mitigate risks. For insurers, maintaining transparent communication with policyholders and proactively engaging with regulators can help navigate the complexities of pandemic-related claims.