COVID-19-related insurance regulatory developments

The COVID-19 pandemic has prompted a significant amount of insurance regulatory activity for both life and property & casualty insurers. This alert summarizes the current state of some of the most notable COVID-19-related developments over the past nine weeks since the US Federal government declared a state of emergency, including (1) state mandates and requests for extending grace periods for paying premiums and adjusting rates for property & casualty insurance due to reduced exposures, and related accounting treatment, (2) the NAIC’s data call related to business interruption (BI) coverage, (3) information requests by state insurance regulators on insurers’ preparations for and exposure to COVID-19, and (4) legislative and regulatory activity declaring COVID-19 illnesses sustained by certain workers to be workplace injuries that are compensable under state workers’ compensation laws and policies. 

I. Policyholder Relief and Related Accounting Treatment

Nearly every state has taken some action over the past nine weeks to provide relief to policyholders suffering hardship due to the COVID-19 pandemic. These actions include orders and bulletins requiring or requesting that insurers extend grace periods and impose moratoria on the cancellation, non-renewal or termination of insurance policies due to non-payment of premiums (and waive associated late fees), reduce premium payments to reflect a reduction in risk due to business closures and stay-in-place orders, and generally exercise leniency in enforcing deadlines for filing claims notices, proofs of loss, and other documentation. The scope and specific requirements of these orders and bulletins vary across states, with some states simply requesting that insurers provide policyholder relief and other states mandating it.

Grace Periods Extensions. To date, approximately 18 states have issued mandates requiring that insurers provide extended grace periods due to COVID-19, while another 29 states have requested that insurers voluntarily extend grace periods. California was one of the first states to act when, on March 18, the California Department of Insurance (CDI) issued a bulletin[1] requesting that all insurance companies provide their policyholders with at least a 60-day grace period to pay insurance premiums. New York and other states soon followed. In accordance with executive orders issued by the Governor of the State of New York, the New York Department of Financial Services (NYDFS) issued emergency regulations requiring insurers to grant premium payment relief to New York consumers and small businesses experiencing financial hardship due to COVID-19. On March 30, NYDFS issued an emergency regulation[2] imposing a 90-day grace period with respect to covered life insurance policies and annuity contracts and a 60-day grace period with respect to covered property/casualty insurance policies. NYDFS issued a separate emergency regulation[3] on April 7 that extended the grace period for covered health insurance policies to the later of the expiration of the applicable contractual grace period and 11:59 p.m. on June 1, 2020. Both of these regulations were set to expire on May 7, 2020, but have been extended until June 6, 2020[4]. Meanwhile, some states are allowing their moratoriums on cancellation and nonrenewal to expire without extension.
Premium Reductions. On April 13, California was again one of the first states to act, when the CDI issued a bulletin[5] directing all insurers to refund a portion of insurance premiums they have charged California policyholders for specified lines of insurance, including commercial automobile, workers’ compensation, commercial multi-peril, and commercial liability, commensurate with the reduced levels of activity caused by the state-wide stay-in-place order. The bulletin provides that insurers are permitted to refund premium without prior approval from the CDI if they (1) apply a uniform premium reduction for all policyholders in an individual line of insurance, or (2) reassess the classification and exposure bases of affected risks on a case-by-case basis. On May 12, the New Jersey Department of Banking and Insurance (NJDOBI) issued a nearly identical bulletin[6] requiring all property & casualty insurers doing business in New Jersey to begin issuing premium refunds as soon as practicable, but no later than June 15, 2020. Insurers who can demonstrate that their existing rates are not excessive, inadequate, or unfairly discriminatory, or otherwise contend that they should not be subject to the premium refund mandate, are required to notify the NJDOBI and provide supporting documentation by June 1, 2020. Separately, the NJDOBI issued an order[7] requiring insurance groups to submit monthly reports containing all actions taken, and contemplated future actions, to reduce premiums consistent with the bulletin. The first report is due to the NJDOBI by June 1 and must include monthly and overall totals for the following: aggregate premium prior to, and subject to, application of refunds or adjustments; aggregate premium refunds and adjustments; the number of in-force policies, and number of policyholders receiving refunds or adjustments. Insurance groups with more than $20 million in written premiums for 2019 for all property & casualty lines combined are also required to provide reports on New Jersey claims and premium activity for 2019, the first half of 2020 and bi-weekly going forward until September 15.

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