With the dramatic economic downturn caused by COVID-19, the cost of insurance and benefits is something our holding company (NFP) and our insurance market partners are addressing with clients. The following are areas to be aware of with regard to your coverage.
- Grace Period – Many insurers have already announced grace periods for both payment of insurance premiums and notices of cancellation for “affected industries.” Several state insurance departments are also moving quickly in this direction. We anticipate grace periods will gain broad adoption.
- Premium Financing – Many companies offer premium financing for clients whose cash flows have changed to relieve some of the short-term economic burden and extend the payment period.
- Exposure Changes – As exposures (revenues, payroll, auto fleet, etc.) used in initial negotiations of these lines of insurance are no longer relevant (or, more to the point, are an inaccurate proxy for the current business climate), insurers may provide interim relief and revise the exposure basis to more accurately reflect current economic conditions.
- Cancel/Rewrites – Depending on the length/magnitude of disruption, we may see clients requesting cancellation/rewrites of their coverage. The inherent dangers in this approach are (1) time it takes to recapture premiums, (2) penalties imposed by insurers, and (3) the loss of continuity of coverage (which becomes highly relevant if either state insurance departments or the courts reinterpret aspects of these coverages more favorably for clients).
- Solvency – Revisiting/monitoring the solvency ratings of key insurers may become increasingly critical if there is solvency deterioration for the industry. Insurance companies typically don’t die slow and painful deaths; they go off cliffs.
Addressing Liquidity Impact of COVID-19*
- How much money do we need and for how long?
- reforecasting operating cash flows, rapid action around working capital, cost-out measures
- Where does existing new funding slot into your existing capital structure?
- review existing credit facility/intercreditor documentation, identify sources of collateral of additional borrowing, value transfer, seek consent with current financing arrangements
- Who can we borrow from and on what terms?
- incumbent lenders, special situation lenders
*Deloitte Corporate Restructuring Group