Earlier in the coronavirus pandemic, insurers became increasingly troubled about legal and legislative efforts to make them retroactively include viruses in their business interruption coverage. Those actions seem increasingly unlikely today, The Travelers Companies Chairman and CEO Alan Schnitzer said.

“The few court decisions we’ve seen so far – one in New York and one in Michigan – have both upheld physical damage requirements in the context of COVID-19,” Schnitzer said during the company’s 2020 second-quarter earnings call on July 23. “On the legislative front, efforts to retroactively expand coverage for business interruptions seem to be diminishing.”

Schnitzer explained that Travelers’ commercial insurance policies that include business interruption cover are very clear about virus exclusions anyway.

“Our commercial insurance policies that include business interruption, including as a result of civil authority, require losses by direct physical damage to property as a cause of loss,” Schnitzer said. “In addition, our standard policy forms specifically exclude loss or damage caused by or resulting from a virus.”

COVID-19 Watch

Travelers reported that COVID-19 and related economic conditions produced a net loss of about $50 million in the 2020 second quarter. That’s a relatively small number compared to other carriers, driven by limited workers compensation and business insurance claims, but offset partially by reductions in auto and traditional workers compensation claims.

Schnitzer noted that the ongoing pandemic has led to continued uncertainty about how to predict and manage COVID-19-related losses to come. That means caution is key.

“We’ve taken a cautious approach to recognizing the net impact … of COVID-19-related loss activity,” he said, even as “some industry observers have speculated about the aggregate level of insured and investment losses arising out of the pandemic.”

That said, Schnitzer acknowledged the unprecedented nature of the continued pandemic. At the same time, he said Travelers has managed the uncertainty so far.

“We don’t doubt the losses will be significant but they won’t be borne evenly across insurers,” he said. “Our manageable COVID-related insurance losses so far this year are a reflection of our disciplined approach to risk selection, as well as terms and conditions.”

Complex Road

The road ahead is a complex one, however, he said.

Travelers has experienced “a meaningful drop-off in auto frequency,” now moderating with a pickup of economic activity after national lockdowns. On the flip side, however, those gains have been offset to some degree by more auto severity (speed-related accidents) and driver distractions, Schnitzer said.

For now, workers compensation COVID-related claims haven’t been “a significant part” of Travelers’ book of business. Those claims are mostly related to healthcare works and first responders, and their number stabilized in the second quarter. Schnitzer speculated a number of factors helped, including more personal protective equipment and acquired knowledge in the healthcare community, thanks to having handled a number of COVID patients by late spring.