COVID-19-related insurance regulatory developments

There continues to be significant regulatory activity related to the novel coronavirus (COVID-19) and its impact on the insurance industry, as well as claims for damages due to looting and vandalism following the recent civil unrest. This alert summarizes some of the most notable insurance regulatory developments over the past week, including activity at the National Association of Insurance Commissioners (NAIC) relating to the COVID-19 pandemic, a New York Department of Financial Services (NYDFS) program intended to speed up the regulatory review process for innovators (particularly innovators with potential to help rebuild New York in the wake of COVID-19), and state actions to address claims for damages resulting from looting and vandalism.

For discussion and analysis of the proposed Pandemic Risk Insurance Act of 2020, see our Legal Alert: Pandemic Risk Reinsurance Program introduced in Congress.

1. NAIC Committee receives feedback on COVID-19-related regulatory actions

On June 11, the NAIC’s Property and Casualty Insurance (C) Committee met via teleconference and discussed recent state insurance regulatory actions related to COVID-19. This was the first time the Committee met since the cancellation of the NAIC Spring National Meeting due to the COVID-19 pandemic. It also followed the NAIC’s recent announcement that the 2020 Summer National Meeting will be held virtually over three weeks beginning the week of July 27.

Commissioner Vicki Schmidt (KS), Chair of the Committee, opened the COVID-19 portion of the agenda by reminding insurers that the first submissions to the claims portion of the NAIC data call on Business Interruption (BI) coverage is due June 15. In May, the NAIC issued a data call to all US property/casualty insurers that wrote BI coverage in the US in 2019 or 2020 to assist state regulators in analyzing “the financial condition of commercial insurers to understand which insurers are writing business interruption coverage, the size of the market, the extent of exclusions related to COVID-19, and claims and losses related to COVID-19.” The data call requires insurers to respond in two parts, with information on BI-related premiums due May 22 and reporting on BI-related claims due monthly from June 15 through November 19, 2020. During her remarks, Commissioner Schmidt noted that the NAIC is expected to make the results of the data call publicly available.

During the meeting, a number of industry and consumer representatives provided feedback on regulatory initiatives that have been enacted or proposed as a result of the COVID-19 pandemic. Most recently, a number of states have extended their moratoria on cancellation and non-renewal of insurance policies due to the ongoing pandemic. For example, New York recently extended its moratorium to July 6, 2020, and on June 6, Delaware extended its moratorium for an additional 30 days.

Industry representatives from the American Property Casualty Insurance Association (APCIA), the National Association of Mutual Insurance Companies (NAMIC) and the Wholesale & Specialty Insurance Association (WSIA) urged regulators to avoid taking any steps that would retroactively amend policy terms to provide coverage where it was not intended. The industry representatives also commended regulators for implementing measures that provide insurers with flexibility, such as virtual inspections and loosening of notarization requirements, which they asked be preserved once the crisis is over.

The Consumer Federation of America (CFA) provided comments relating to recent state actions directing or requesting that insurers refund a portion of insurance premiums for certain lines of insurance, such as private passenger automobile coverage, to reflect the reduced levels of activity caused by statewide stay-in-place orders. Most recently, the California Department of Insurance expanded its previous order for premium refunds to include the month of May. The CFA called for additional regulatory action to ensure that US drivers avoid paying excessive premiums. The CFA noted that most insurers have provided some relief, but not all, and that only five insurance groups are extending premium relief past May 31. In this regard, the CFA noted that driving was down by 27% during the last week of May, indicating that an average premium reduction of about 15% is necessary in June. The Center for Economic Justice echoed this sentiment and recommended that regulators update the state page of the annual and quarterly financial statements to add two data columns or fields – written exposures and earned exposures – for personal auto and homeowners’ insurance to enable regulators to monitor changes in average premium more closely.

2. NAIC Task Force to Reconsider Accounting Guidance for Insurers Granting Premium Refunds

As noted above, in response to the pandemic, a number of state insurance departments have issued orders or bulletins directing or requesting that insurers refund a portion of insurance premiums for certain lines of insurance to reflect the reduced levels of activity caused by statewide stay-in-place orders. The NAIC has been considering how to ensure that these reduced premiums are consistently reported on insurers’ statutory financial statements. On June 22, the NAIC Accounting Practices and Procedures (E) Task Force approved interim accounting guidance (INT 20-08) that would require premium refunds outside of policy terms to be reported as a reduction of premium (and not as an expense). Insurers seeking to report these reductions in a different manner would be required to obtain approval from their domiciliary regulator for a permitted or prescribed accounting practice.  The proposal was expected to be approved by the NAIC Financial Condition (E) Committee during its meeting on July 1, but it was sent back to the Task Force for reconsideration. APCIA and other industry representatives have been advocating for a more flexible rule that would allow insurers to treat premium relief payments as an expense if they previously filed policy endorsements or manual rate filings disclosing that these payments would be reported as expenses. It is unclear if the Task Force will meet before the Summer National Meeting to discuss the proposed guidance.

3. DFS launches new Fintech/Insurtech program

On June 9, NYDFS announced the official launch of DFSFastForward, a program intended to speed up the regulatory review process for innovators. The program provides Fintech and Insurtech startups and other innovators with access to DFS staff and subject matter experts who can provide information and guidance about how DFS regulations apply to their businesses. In launching this program, DFS noted that it is particularly interested to engage with businesses with the potential to help New York State and New Yorkers rebuild in the wake of COVID-19, including solutions that:

• Promote recovery for small businesses;
• Provide healthtech solutions to deliver access and better meet the healthcare needs of New Yorkers; and 
• Offer tools for individuals and households to build their financial futures and resilience.

DFSFastForward is open to both DFS regulated and non-regulated entities, as well as other innovators with ideas that may fall under DFS’s regulatory purview. However, interested parties must first apply and be accepted into the program. DFS has also noted that it is looking for applicants to the program to have already done some legwork themselves by researching the regulatory requirements that may apply and preparing specific questions. This program is an expansion of an earlier DFS pilot program called Project Whitehall, which focused entirely on Insurtech issues. This program is being launched in the context of the ongoing digital transformation of the financial and insurance marketplaces. While many startups and new market entrants are looking to disrupt and evolve existing product and service offerings in the market, a frequent refrain heard at the NAIC and elsewhere has been the high-barrier to entry posed by financial regulatory obligations and the inflexibility of outdated laws. This program is an attempt to answer those complaints by providing a clear path to engagement with NYDFS.

4. States take steps to address claims resulting from looting and vandalism

On June 5, NYDFS issued an emergency amendment to New York’s Regulation 64 that grants the Superintendent authority to make expedited claims settlement and dispute resolution processes available to New York policyholders who suffer a property/casualty loss resulting from a riot or civil commotion. The Emergency Regulation applies to “any claim filed on or after May 30, 2020 for loss of or damage to real property, loss of or damage to personal property, or other liabilities for loss of, damage to, or injury to persons or property resulting from a riot or civil commotion in [New York], where the superintendent has determined that it is in the best interests of the people of [New York] for such provision to apply.” 

For claims subject to the Emergency Regulation’s provisions, insurers are required to commence a claims investigation by June 5, 2020, or within six business days of receiving notice of the claim (whichever is later). Typically, insurers are required to commence investigation within 15 business days of receiving notice of a claim. In addition, the regulation requires that insurers send a written notification to every claimant detailing all items, statements, and forms that the insurer reasonably believes will be required to process the claim. Further, the regulation allows policyholders to make immediate repairs to certain parts of damaged real property, if necessary to protect health or safety. Policyholders are also permitted to submit claims with reasonable proof of loss, such as photographs or video recordings, without the need for a physical inspection.

The amended Emergency Regulation also accelerates the frequency with which an insurer must follow-up with a claimant if they are unable to make a claims determination within 15 business days of receiving proof of loss. Typically, insurers are required to follow-up with claimants every 90 days, but for claims subject to the Emergency Regulation, insurers are required to follow-up every 30 days. The follow-up notices are required to include the reason additional time is needed for investigation and the anticipated date a determination on the claim will be provided. Most notably, where insurers do require additional time, they are also required to provide detailed weekly reports to NYDFS on the status of such claims.

Finally, the amended Emergency Regulation adds a mediation option to resolve claim disputes of $1,000 or more for individuals or small businesses with 100 or fewer employees. For these claims, insurers must send claimants written notice of their right to request mediation, either (1) at the time of denial; (2) within 10 business days of the date that the insurer receives notification from a claimant that the claimant disputes a settlement offer; or (3) within two business days after the date that is 45 days after the insurer has received a properly executed proof of loss and all requested items, provided that the insurer has not offered to settle the claim prior to such date.

On June 8, the Illinois Department of Insurance issued a bulletin requesting that all property/ casualty insurers licensed in Illinois implement certain protective measures to address losses resulting from recent acts of vandalism and looting. Specifically, the bulletin asks that insurers implement the following measures:

• Insurers should apply claims best practices consistent with the categorization of this event as a catastrophic event, including expedited claims handling, advance claim payments, and fair treatment of all policyholders, regardless of size.
• Insurers should implement a moratorium on the cancellation or non-renewal of impacted policyholders for a period of 60 days from June 8. 
• Insurers should err on the side of the policyholder when paying claims as a result of riots, civil commotion, or vandalism from commercial policyholders who were unable to make full premium payments during the period following the Governor’s Executive Order 2020-10, dated March 20, 2020.
• To the extent business interruption provisions are included and operative under a policy, insurers should base payouts on business activity levels that eliminate the impact of COVID-19.
• Insurers should err on the side of the policyholder when considering the use of exclusions that may or may not be applicable.

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