The Impact of COVID-19 on Insurance Companies

April 09, 2020

By Dianne Batistoni and Kenneth Croarkin, Partners, EisnerAmper LLP

The speed at which COVID-19 is impacting the economy is unprecedented. Like many businesses, insurance companies are facing unique challenges in this rapidly evolving situation. How insurers approach and respond to these challenges will influence their resiliency and ultimately how they will fare.

Insurance companies are facing new pressures as they are hit with multiple challenges—all at once.

Strain on investment portfolios – Insurance companies rely on their investment portfolios to generate returns. Markets have been in turmoil and, as a result, insurers’ investment portfolios may be significantly impacted. Additionally, interest income revenue streams may quickly dry up as interest rates continue to drop.

Delayed payments – Regulators are urging insurance companies to accept late premium payments with no penalty, putting a strain on cash flow. Despite liquidity being impacted, insurance companies are still being expected to pay out claims.

Decreased premium volume – Full or partial closing of businesses coupled with social distancing has led to decreased demand for insurance.  Lower payroll levels lead to lower payroll-based premiums, such as those in workers’ compensation, and an uptick in layoffs results in fewer people buying houses, cars, and other insurable purchases. A decrease in premium volume means a decrease in income for insurers.

Coverage disputes – Pandemics are generally excluded from insurance policy coverage and therefore policy premium has not included the necessary charges to provide such coverage. A number of states are attempting to legislate to force insurance companies to provide insurance coverage for business interruption and other losses for claims resulting from the COVID-19 pandemic. There is uncertainty regarding which party will ultimately incur the additional cost for these adjustments.

Insurance companies that stay informed, remain proactive, and seek advice will be better positioned to respond to the compilation of challenges and uncertainty.

Stay Informed

Filing Deadlines – The National Association of Insurance Commissioners (NAIC) and state insurance departments are considering providing automatic extensions for certain filing deadlines. Given that state governments could be quickly overwhelmed with individual requests from businesses for an extension, it’s hoped that states will implement an automatic extension—similar to federal government extensions for tax return filing this year. Filing extensions could include quarterly statutory statement filings and annual audited financial statements.

Business Interruption Insurance – Several states -- including New York, Massachusetts and Ohio -- are looking at legislation that would require insurers to make payments under business interruption insurance for business that have been impacted due to COVID-19, an uncovered cause of loss under most policies. This forced coverage adjustment is proposed to be repaid to insurers with varying degrees of an assessment across the industry. The number of states considering similar legislation is likely to increase.

CARES ActThe Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and other government stimulus programs provide relief to individuals and businesses impacted by the COVID-19 pandemic. Federal, state, and local officials have reassured their constituents that they will make a number of resources readily available. The new legislation includes assistance loans, grants and tax relief provisions such as deferred filing and payment deadlines, net operating loss carrybacks and acceleration of corporate alternative minimum tax (AMT) refunds.

Be Proactive

It’s important that insurance companies stay informed regarding new developments in order to remain in front of issues and able to respond quickly.

SBA Loans:  As part of the CARES Act, loans are available to qualifying small businesses that are impacted by the current economic conditions. Loan proceeds must be applied toward ongoing operations, including payroll expenses, and other eligible costs. These loans are eligible for tax free forgiveness should all of the requirements be met.  The Small Business Administration (SBA) has been charged with administering the Payroll Protection Plan (PPP) and will be issuing additional guidance and regulations.  Employers not taking advantage of the PPP can defer the employer portions of Social Security tax that would be due during 2020.  

State Tax Planning and Compliance: Managing a remote workforce, with employees located across multiple jurisdictions, may introduce new tax considerations. Several states and local jurisdictions have provided guidance surrounding business income tax nexus and employee withholding tax while working from home during the pandemic.  With proper planning, companies can mitigate risk and avoid costly penalties by remaining in compliance with legal as well as state and local taxation requirements.

Cybersecurity: Companies have seen an increase in cyber attacks in the wake of the business disruption that has resulted from the COVID-19 pandemic. The rapid shift to a remote workforce, for example, has created openings for more vulnerabilities, which can be combatted with operational safeguards, employee support and training, process revisions and updates, and deployment of virtual technologies.

Audit-Ready: Timely preparation of year-end financial documentation and frequent communication with the auditor of your financial statements can alleviate unnecessary stressors. Make it a priority to reduce stress levels, where and when you can, during the current economic environment. The audit process creates an opportunity for the auditor to recommend improvements to policies and procedures in order to strengthen internal controls of the company’s books and records—further protecting your company’s bottom line.

Seek Advice

Whether you need assistance preparing a loan application, have tax and accounting questions based on recent legislation, or are struggling with operational efficiently amidst a new work arrangement, take advantage of the resources and expertise available to you—whether that’s tapping someone internally to lead the charge or seeking out professional advice. Making small adjustments and investments today can save you money in the short- and long-term and help increase your resiliency in the current environment.

EisnerAmper is continuing to monitor the rapidly evolving situation and is continually providing timely updates regarding new developments. Visit our Coronavirus Knowledge Center for more information. Our team of professionals are also a resource for you and available to help.

About Dianne Batistoni

Dianne Batistoni is a Partner in the Insurance Industry Practice, and leads the Insurance Regulatory Practice,with more than 20 years of professional accounting experience. She has extensive property and casualty insurance, captive and examination experience.

About Ken Croarkin

Ken Croarkin is the Partner-in-Charge of the Insurance Industry Practice. He currently leads a number of Statutory and GAAP external audit engagements, and also provides internal control consulting services to insurance companies and brokers.

Have Questions or Comments?

If you have any questions, we'd like to hear from you.