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“The insurance industry is a fundamental part of the economic plumbing of this country,” Greenberg said in an interview Thursday. Forcing insurers to foot the bill for losses not covered by policies “would do great damage. It would bankrupt the industry.”
The coronavirus pandemic has stirred up a debate among insurers, policyholders and other stakeholders about who will be responsible for the estimated billions of dollars in losses that companies face from widespread shutdowns across the country. Insurance companies have warned that many business-interruption policies aren’t designed to cover pandemics, which create catastrophic losses.
“Pandemics, unlike other catastrophes such as a hurricane or an earthquake, are not limited by geography or time,” Greenberg said. “The loss potential from a pandemic, in practical terms, is infinite, and insurance companies have only finite balance sheets.”
Lawmakers in states including New Jersey have considered legislation forcing insurers to pay out certain interruption losses for small businesses, with some bills requiring insurers to pay out even if policies explicitly excluded losses from viruses. The American Property Casualty Insurance Association has estimated that companies with 100 employees or fewer could see business continuity losses of as much as $431 billion a month, compared with the $800 billion in total surplus for all U.S. home, auto and business insurers.
The industry would be damaged by any measures to retroactively force insurers to pay out for losses that policies didn’t cover and weren’t priced for, Greenberg said. He argued that the insurers would fight back, and called it unconstitutional to try to rewrite contracts. The only entity that has the financial resources to deal with the tail risk of a pandemic is the government itself, he said.
What Bloomberg Intelligence Says
“P&C insurers, including Travelers (NYSE:TRV) and Hartford, face a bigger risk from states potentially forcing the payment of uncovered claims versus early business interruption lawsuits, where they have the edge, in our view.”
–Matthew Palazola, senior industry analyst, and Elliott Stein, senior litigation analyst
Greenberg said that a potential way to handle pandemic risks in the future would be to create a public-private partnership, where insurers could start covering that risk for a proper price and the government could take on the tail-risk exposure. That model would echo efforts by the government and insurance industry to deal with terrorism risks after the Sept. 11, 2001, attacks.
He cautioned, however, that affordability would become a major question. Insurers will need to set prices to appropriately account for the heightened risk, but that could mean policyholders might shy away from coverage because of the higher cost.
Greenberg has built Chubb into a huge insurer, with a market capitalization more than double that of rival American International Group Inc (NYSE:AIG)., once run by his father, Maurice “Hank” Greenberg. Chubb insures high-net-worth individuals and corporations across the globe, offering companies coverage for risks such as cyber, environmental and professional liability.
President Donald Trump recently named Greenberg to the economic revival industry groups as the government tries to figure out how to restart the economy. Chubb’s CEO said that executives he’s spoken with are thoughtful about prioritizing the safety of workers. It will be key that there’s the ability to test for the coronavirus in a rapid and accurate manner to help contain it, he said.
Certainty Needed
Also necessary for getting the economy back on track will be giving businesses certainty around legal risks that could crop up from Covid-19, he said. He urged Congress to consider granting limited immunity from litigation that arises from coronavirus-related issues, except in cases of gross negligence. While his company offers some coverage for corporate liability risks, the threat of litigation affects a wider swath of businesses, he said.
“There are things that we can and should do to provide a greater degree of certainty, and relieve the economy and business of unnecessary financial burden in the short and medium term,” Greenberg said. “I’m not talking about giving immunity to insurance companies. I’m talking about business and corporate America and nonprofits.”
Greenberg warned that the economy will likely face a deep recession, with some companies and industries faring better than others, and cautioned that a timeline for reopening businesses is uncertain. But if the economy starts opening in a prudent way in the near future, some meaningful economic activity could return by the third quarter with more normalcy in the fourth, he said.
The country’s ingenuity and ability to innovate offers hope for a way back, he said.
“In that regard, I’m optimistic and I don’t count Americans out,” Greenberg said. “I think we can have a pretty darn good 2021.”
©2020 Bloomberg L.P.
