The COVID-19 Pandemic and Business Interruption: Seeking Innovation from Captive Insurers

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Michael Maglaras, Principal of Michael Maglaras & Company states: Property policies written for health care institutions frequently contain broad limitations on business interruption coverage caused by the cascading effect of dealing with the coronavirus. Health care facilities are quickly realizing that business interruption claims caused by the COVID-19 crisis may be difficult to collect on, unless physical loss or damage to property can be substantiated.

Maglaras has determined that captive insurance companies owned by health care providers may be able, in some cases, to play a significant role in property claim recovery, depending upon the amount of the loss, and the strength and availability of a captive’s surplus.

As health care facilities rise to meet the challenge of the COVID-19 pandemic, these health care facilities are suffering significant daily loss of revenue as they are mandated to reallocate resources to dealing with the outbreak...at the expense of ambulatory and elective surgery revenue.

Property policies written for health care institutions frequently contain broad limitations on business interruption coverage caused by the cascading effect of dealing with the coronavirus.

“Health care facilities are quickly realizing that business interruption claims caused by the COVID-19 crisis may be difficult to collect on, unless physical loss or damage to property can be substantiated,” said Michael Maglaras, Principal of Michael Maglaras & Company. “We’re now actively engaged with four health care systems in freeing up excess surplus in order to contribute to business interruption losses not covered by standard commercial property policies.”

Maglaras has determined that captive insurance companies owned by health care providers may be able, in some cases, to play a significant role in property claim recovery, depending upon the amount of the loss, and the strength and availability of a captive’s surplus.

“We first encourage health care providers to determine the amount of commercial property business interruption and time element coverage that may be available for decontamination costs, communicable disease cleanup, and interruption by communicable disease,” added Maglaras. “But we are very busy speaking daily with health care systems about how they can use their captives’ existing surplus to augment property insurance coverage availability.”

This process does not involve declaring dividends from a captive, but does involve the manuscripting of supplementary business interruption and time element coverage to assist in reimbursing expenses directly tied to loss of revenue.

“Even in the case of claims tied directly to business interruption by civil authority, we can create supplementary coverage sources to partially pay business interruption losses, provided that these additional balance sheet liabilities do not compromise reasonable ratios of existing equity to long-term liabilities,” added Maglaras.

Maglaras noted that he is busy moving captives owned by tax-exempt U.S. health care providers, which have had a long offshore domicile history, back to the United States.

“There’s virtually no reason for a 501(c)(3) tax-exempt health care provider to own a captive domiciled outside the United States anymore,” said Maglaras. “Perhaps this terrible COVID-19 crisis will convince U.S. health care executives that a U.S. domicile for their captives now makes more sense, not only from the standpoint of innovation and creative solutions...but also from the standpoint of optics.”

To learn more about Michael Maglaras & Company: http://www.michaelmaglaras.com.

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Tami Burke
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