COVID-19 crisis: Insurers to the rescue?

Paul Karon, who served for 10 years as CEO of Benfield Inc. — a major reinsurance and risk management firm acquired by Aon in 2008 — sees a silver lining for the insurance industry amid a looming financial catastrophe.

'Insurance companies would really have to step up because they’d be paying way more claims.' Paul Karon, retired insurance industry executive

Karon, who retired in 2010 and lives on Longboat Key but continues to serve on industry boards, thinks insurance companies should pay out all legitimate business interruption claims, regardless of whether they are covered, and then seek reimbursement from the federal government. He says the government should “backstop” all claims and then settle up with insurers later, when adjusters have been able to determine the extent of economic harm done to policyholders. 

That approach would be superior, Karon says, to bailouts and loans made without adequate knowledge of companies’ specific needs. 

Insurance companies “have a business relationship with their policyholders,” he says. “They’ve collected premiums; they know the [employee] headcount, the revenues, the history, the risks. They’re so much closer and in such a better position to figure out how much a certain company should get in a business interruption claim, and instead we have the federal government just spraying money all over the country.” 

Unfortunately, in the wake of the 2003 SARS outbreak, many insurers excluded losses due to communicable diseases from their business interruption policies. But Karon compares the current public health emergency to an even worse crisis — the aftermath of the Sept. 11, 2001, terrorist attacks.

At that time, the Terrorism Risk Insurance Act was passed by Congress and signed into law by President George W. Bush. TRIA created a funding backstop for business interruption and other insurance claims related to the economic fallout. 

“That would be the closest analogy, but we’ve never been here before,” Karon says, referring to the COVID-19 crisis. "[TRIA] would be sort of a precedent. But it’s not like there aren’t challenges to my idea. Insurance companies would really have to step up because they’d be paying way more claims.” 

In addition to a potential rescue of at least a portion of the U.S. economy, taking the lead on business interruption claims would be “an opportunity for the insurance industry to improve its reputation, which is generally bad because people call and get their claims adjusted but never get what they want,” Karon says. “It probably improves their relationship with their customers because they’re doing something valuable for them, and it keeps their customers from going broke. Everybody wants their customers to stay in business and stay solvent.”