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What the Hell Is Pandemic Insurance, and Do I Need It?

After being cancelled by the coronavirus, Wimbledon is getting $141 million thanks to their pandemic insurance policy. But… what about me?

Under normal, non-catastrophic circumstances, Wimbledon, the most prestigious of tennis tournaments, would be only a few weeks away. But like many large summertime events, it was cancelled when the coronavirus came about — a bummer for tennis junkies and tournament organizers alike, who were expecting $310 million in revenue this year.

Fortunately for some of the Wimbledon committee, their pandemic insurance — which cost them $34 million over the last 17 years — kicked in, awarding them $141 million to help cover those losses. Which, uh, what the hell is pandemic insurance? For more information, I spoke with Peter Kochenburger, executive director of the Insurance LLM Program and deputy director of the Insurance Law Center at the University of Connecticut. Here’s what you need to know… 

First of all, do I, an individual, need pandemic insurance?

Well, not necessarily. As Kochenburger explains, “Pandemic insurance is really, really specific,” and frankly, you signing up for an insurance policy strictly for the sake of pandemic-related coverage would be “very unusual.”

As individuals (rather than businesses), many of us are already covered — or at least offered some kind of coverage — that would protect us from pandemic-related losses. For example, our health insurance should — theoretically, but not really — cover treatment related to us getting sick. Or we could purchase trip insurance that would theoretically cover our vacation being cancelled because of travel bans. As Kochenburger explains, these policies may not be labeled specifically as pandemic insurance, but they should cover losses related to a rapidly spreading illness — although, he does add, “Unfortunately, most travel insurance policies are pretty weak in the first place.”

Why would anyone need pandemic insurance, then?

In the case of Wimbledon, their pandemic insurance covered the forced cancellation of their event — which is great for them, but large events already had access to broader forms of cancellation insurance long before we were even discussing pandemic insurance. The trouble — as is always the trouble with insurance — is that these policies often exclude pandemics somewhere in the fine print.

The same can be said for business interruption insurance, which Kochenburger says “has its own problems.” It generally covers losses from damage to physical property that requires the business to shutter for a time, but may not necessarily cover a government-imposed shutdown as a result of a pandemic. Moreover, these kinds of policies are rarely intended to reimburse the entire amount lost. “Wimbledon lost over $300 million, and the policy paid $141 million,” Kochenburger points out. “That’s only 50 percent.”

You can see that there are a lot of policies out there that should cover pandemic-related problems, but actually exclude pandemics from their coverage, hence the reason why the people over at Wimbledon are probably feeling pretty smug right now.

Well that sucks. Will this pandemic change anything?

It could! As Kochenburger explains, rather than seeing a lot more hyper-specific pandemic insurance policies offered to your average person, we may start seeing policies like business interruption insurance become more inclusive about pandemics, and instances of civil authority, where a business is forced to shut down for the public good.

But Kochenburger also expects some insurance companies to double down, making it more clear that their “virus and bacteria exclusions” are both strong and enforceable. The coronavirus and its economic impacts are unprecedented, and insurance companies may need some time to figure out how they can remain profitable by providing — or rather, not providing — coverage for pandemic-related problems.

It really is a complicated issue, because a pandemic like this one can impact so many different areas of life, and insurance companies need to set limits on what they cover in order to remain profitable. For example, Kochenburger mentions that, if someone were to sue you for contracting the coronavirus in your home, many modern homeowners’ insurance policies would be obligated to hire an attorney in your defense as of now. But if too much of that happens, we may start seeing more exclusions for that kind of thing.

Sounds pretty complex.

It is! And insurance companies aren’t the only deciders when it comes to how they move forward with world-changing events like a deadly pandemic. “Insurance is heavily regulated, more than most products,” Kochenburger says, adding that we’re already seeing state legislation push for insurance companies to waive coronavirus testing fees and even retroactively cover business interruption losses.

Many insurance companies are pushing back, arguing that they simply can’t reasonably cover the widespread impact of a pandemic like this one, or else they’d go completely broke. But that’s exactly why even the federal government is currently working on a bill — the Pandemic Risk Insurance Act — which would basically provide a backstop from the government to help insurance companies cover pandemic-related problems. “This can also be an opportunity for cooperation, and believe it or not, that still happens,” Kochenburger says.

“A very similar plan was created after 9/11 — the Terrorism Risk Insurance Act,” Kochenburger explains. Basically, the government decided that they don’t want insurance companies excluding acts of terrorism, but they also recognized that they may need some help affording that. So if an act of terrorism happens and it costs insurance companies a certain amount, federal aid will now kick in.

So it’s basically out of my hands? 

To a degree, it is. Insurance companies are huge, and there’s a lot that goes into how they work. But the bottom line is that, while your average individual may not necessarily need to go out of their way to get pandemic insurance, we should start seeing insurance companies be more transparent about whether their broader policies cover pandemic-related issues. And while insurance can oftentimes be a huge pain, that’s a step in the right direction.