New York State regulators direct insurers to report on preparedness and business interruption coverage

Date published





In response to the coronavirus COVID-19 pandemic, the New York State Department of Financial Services (the "NYDFS") has directed insurers to report on their financial and operational preparedness for the effects of COVID-19 by April 10, 2020.

Specifically, the NYDFS issued Circular Letter No. 5 to "Chief Executive Officers or the Equivalents of DFS Regulated Insurance Entities" which states that an entity’s preparedness plan should be sufficiently flexible to effectively address a range of possible effects that could result from COVID-19 and should also adequately reflect the entity’s size, complexity and activities. According to the NYDFS, an insurer’s operational plan should include, at a minimum:  

  1. Preventative measures tailored to the entity’s specific profile and operations to mitigate the risk of operational disruption, which should include identifying the impact on consumers and vendors;
  2. A documented strategy addressing the impact of the outbreak in stages, so that the entity’s efforts can be appropriately scaled, consistent with the effects of a particular stage of the outbreak;
  3. Assessment of all facilities, systems, policies and procedures necessary to continue critical operations and services if members of the staff are unavailable for longer periods or are working off-site, including the effectiveness and security of remote access;
  4. Employee protection strategies, critical to sustaining an adequate workforce during the outbreak, including employee awareness and steps that employees can take to reduce the likelihood of contracting COVID-19;
  5. Assessment of the preparedness of critical third-party service providers and suppliers;
  6. Development of a communication plan to effectively communicate with consumers and vendors, and to deliver important news and instructions to employees, along with establishing forums for questions to be asked and addressed;
  7. Testing of the plan to ensure that the policies, processes, and procedures are effective; and
  8. Governance and oversight of the plan, including identifying the critical members of a response team, to ensure ongoing review and updates to the plan, including the tracking of relevant information from government sources and the entity’s own monitoring program.

In regards to the financial risk posed by COVID-19, the NYDFS requires, at minimum, the following assessments:

  1. Assessment of the overall impact of COVID-19 on reserve requirements, consumers’ ability to make timely premium payments, and resources required to timely process claims;
  2. Assessment of the credit risk of counterparties and business sectors impacted by COVID-19;
  3. Assessment of the credit exposure to counterparties and business sectors impacted by COVID-19arising from investing and other financial transactions;
  4. Assessment of the scope and the size of admitted assets or other investments adversely impacted by COVID-19 that currently are in, or potentially may move to, non-performing/delinquent status, including consideration of stress testing and/or sensitivity analysis of such assets or investments;
  5. Assessment of the valuation of assets and investments that may be, or have been, impacted by COVID-19; and
  6. Assessment of the overall impact of COVID-19 on earnings, profits, capital, and liquidity.

The NYDFS has placed the responsibility of ensuring that appropriate plans are in place and sufficient resources are allocated to implement such plans on the board of directors or the equivalent of each regulated entity. Additionally, senior management is responsible for ensuring that effective policies, processes, and procedures are in place to execute the plan, and for communicating the plan throughout the entity to ensure consistency in approach so that employees understand their roles and responsibilities. 

All responses and questions should be directed to Insurers have been instructed to provide responses as soon as possible but no later than April 10, 2020. The NYDFS circular letter can be accessed using the following link:

The NYDFS previously directed insurers to report on business interruption coverage written in New York pursuant to section 308 of the New York Insurance Law. The NYDFS stated that policyholders have urgent questions about the "business interruption" coverages provided by their commercial property insurance policies, and given the potential impact of COVID-19 on business losses, NYDFS considers insurers’ obligations to policyholders a heightened priority.

Additionally, insurers providing commercial property insurance, or substantially similar insurance such as business owner policies, commercial multiple peril policies, and specialized multiple peril policies, have been instructed to explain to policyholders the benefits under their policies and the protections provided in connection with COVID-19. Insurers were asked to provide the NYDFS with the volume of business interruption coverage, civil authority coverage, contingent business interruption coverage, and supply chain coverage the insurer wrote, in effect as of March 10, 2020, as well as the amounts of direct premium, the policy types, and the number of policies written of each type.

Further, insurers have also been required to explain to policy holders, the coverage each policy offers in regards to COVID-19, including the following information:

  • The type of commercial property insurance or related insurance the insured holds.
  • Whether the policy covers "business interruption", a list of the covered perils under the policy, if the policy contains a requirement for "physical damage or loss", and the type of damage or loss sufficient for coverage.
  • Whether the policy includes "civil authority" coverage, the type of damage or loss required for coverage, and specifically, whether impairment of the policyholder’s access to property by civil authority in connection with COVID-19 is sufficient for coverage.
  • Whether the policy provides "contingent business interruption" coverage, the covered perils under the policy, the type of damage or loss sufficient for coverage under the policy, whether the policy contains a requirement for "physical damage or loss", and whether contamination related to a pandemic may constitute such "physical damage or loss".
  • Whether the policy provides "supply chain" coverage and the limitations of such coverage, whether the policy contains a requirement for "physical damage or loss", and whether contamination related to a pandemic may constitute such "physical damage or loss".
  • The applicable waiting period under the insured’s policy.

We will continue to monitor issues regarding COVID-19 as they relate to insurers as they evolve.