Emerging risks in 2021
Cannabis, COVID and severe wildfires are a few emerging risks developing into unique exposures for the insurance industry to consider.
Over the past few years, several new and different exposures have developed that have unique or unusual insurance needs. Coverages for some of these have been developed over time. For some, exclusions have been created for use until the risk becomes better quantifiable, while other emerging risks are still developing, so coverage needs are not yet clear.
Cannabis legalization
Marijuana was first legalized in a few states for medicinal purposes for certain illnesses. Many states followed, and by 2016, states were beginning to legalize it for recreational use. This raised a host of issues; many employers had restrictions against the use of drugs while working, and patients using marijuana could test positive for weeks afterwards even though they hadn’t used the product during working hours. Workers’ compensation, product liability, general liability, and even homeowners coverages could all be affected. Since marijuana is still federally illegal, this creates significant complications to the marijuana industry as a whole.
In 2018, at the request of the California Insurance Department, AAIS developed a BOP policy specifically geared to providing coverage for cannabis businesses. While similar to a standard BOP, it provides certain definitions, coverages and exclusions particular to the cannabis industry.
By 2019, the Clarifying Law Around Insurance of Marijuana Act, or CLAIM Act, had been developed and proposed to provide certain protections for the marijuana industry and various financial services that support the industry as well, such as banks, building owners, property renters, equipment suppliers and insurers.
By December of 2019, ISO had developed specific exclusions for cannabis, and cannabis with a hemp exception, for agricultural capital, commercial auto, commercial property, inland marine and capital assets.
The fall 2020 election brought five new states to the list of those that have legalized marijuana, and the industry has grown 109% from November 2019 to November 2020. However, the continued issue for insurers is that marijuana is illegal federally, and even with the CLAIM Act, many insurers are reluctant to start providing coverage.
Self-driving vehicles
Autonomous vehicles are another emerging risk that is still developing. In 2016, technology had come far enough that the Department of Transportation developed the Federal Automated Vehicles Policy, which was designed to define various levels of vehicle automation, provide a model state policy, provide NHTSA’s current regulatory tools, and list new tools and authorities. This has been replaced by A Vision for Safety, which was designed to provide a framework for moving forward with this technology safely while establishing necessary regulations. This has been built upon multiple times and the document currently in use is the Ensuring American Leadership in Automated Vehicle Technologies: Automated Vehicles 4.0, which provides governmental autonomous vehicle principles, details administration efforts in supporting the growth and leadership of autonomous vehicles and outlines governmental activities and opportunities for collaboration.
One of the largest issues yet to be resolved is where responsibility lies if a fully autonomous vehicle is responsible for an accident? Is the owner of the vehicle responsible, and if so would the accident affect his insurance premium? If an insured with an autonomous vehicle has multiple at-fault accidents, however, that is determined, will that person’s policy be nonrenewed even though no individual was in control of the vehicle? It’s a complicated situation to work out.
There have been fatalities in semi-autonomous vehicles; most have involved some user error, as the vehicles are not autonomous and drivers are supposed to be paying attention continually. However, once the technology becomes available, is the owner of the vehicle responsible for how his vehicle is programmed or is the manufacturer? While at first manufacturers were stating they would assume liability, as fully autonomous vehicles are farther away than first predicted, such promises are not being heard. In 2018, the Japanese government proposed guidelines that would make the vehicle owner responsible for accidents when a vehicle was being driven in autonomous mode, and manufacturers would be responsible only if there was a true flaw in the system itself. Not only that, but considering how interconnected things are, there are concerns that autonomous vehicles can be hacked and either stolen or directed to drive into buildings, crowds, or otherwise be used for nefarious purposes by the hackers.
Autonomous vehicles can provide tremendous benefits to society, from significantly reducing accidents to allowing vision-impaired and other disabled people to have enhanced mobility to allowing autonomous fleets of trucks to transport goods across the country 24/7. There are many, many benefits once the technology is fully developed. However, who is to provide insurance, how that insurance will be rated, and how the auto insurance industry will be impacted once collision losses are few and far between all need to be determined.
The pandemic spares no one
The year 2020 brought a worldwide pandemic at levels not seen for 100 years. With countries enforcing closures of nonessential businesses, the issue of coverage for business interruption became an enormous issue. Insureds were filing claims left and right while insurers were denying claims since the property hadn’t been physically damaged by the virus and coverage is based on the property actually sustaining physical damage either for direct coverage or coverage for enforcements of civil authority. Many suits have been filed, and while many American courts have found for the insurers, not all have, and various European courts have found for the insureds. This whole situation highlights the importance of policy language; the European policies have different wording; hence coverage was applied in some cases.
Future pandemics are entirely possible and may be worse. How the industry responds to this and how policy language may be altered as a result of the pandemic is yet to be seen. Many have called for a federal program similar to TRIA for offering pandemic coverage since the issue affects all states; to date, action on a federal level has not been taken.
Fire risk grows
While fire isn’t exactly an emerging risk, since it is a straightforward and easily understood peril, the past few years’ enormous wildfires have made it more complicated than in the past. The California insurance department has directed carriers to provide advance additional living expense payments of at least 4 months; provide a 25% advance on payments of contents for those who have sustained a total loss; advised carriers not to require company-specific inventory forms if other forms provide the same information; and to coordinate debris removal with city, county and state agencies.
Senate Bill 872 was signed into law by the governor in October 2020 and provides that effective July 1, 2021, that carriers are prohibited from limiting additional living expenses if the home is rendered uninhabitable by a covered peril but authorizes a carrier to provide a reasonable alternative remedy. For claims after January 1, 2021, carriers are required to provide advance payment for additional living expenses and accept a contents inventory in any reasonable form. A 60-day grace period for payments is required for properties located in an area defined in a declared state of emergency for 60 days after the emergency.
For losses related to a state of emergency, additional living expenses shall be covered for no less than 24 months from the date of the loss, and carriers may grant an extension of an additional 12 months to provide a total of 36 months of coverage if an insured acting in good faith has run into unavoidable delays in reconstruction. Such delays include permit delays, lack of construction materials or lack of available contractors to perform the required work.
Regarding inventories of contents when the insured has sustained a total loss to a primary residence, carriers are to accept groupings of various categories of personal property. Such groupings include clothing, shoes, books, food items, CDs, DVDs, or other categories that would be impractical to list separately and claim each item individually.
While there are more emerging risks, these are the ones most likely to be encountered in everyday practice. Change is always a given, and how these and other emerging risks change and develop remains to be seen.
Christine G. Barlow, CPCU (cbarlow@alm.com), is the managing editor of FC&S Expert Coverage Interpretation, the authority on insurance coverage interpretation and analysis for the P&C industry.
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