Well this is starting to become a trend.
Over the past few weeks, state governments across the Land of the Free have been feverishly proposing new legislation that will virtually guarantee the entire insurance industry is wiped out.
The root of the issue has to do with something called business interruption insurance.
Business interruption is a pretty common type of insurance that’s designed to protect business owners against a number of risks.
For example, let’s say you own a restaurant and you have a bad kitchen fire that forces you to shut down for a month.
You’d most like have a fire insurance policy to cover the direct damage of the fire. And a lot of companies would also have a business interruption policy to help them stay afloat during that one-month period while the business is closed for repairs.
But business interruption insurance has certain exclusions. It’s just like any other policy, and the insurers are very clear about what risks they do/do not cover.
A typical homeowner’s insurance policy, for example, covers your home against risks like theft, fire, and vandalism.
But most homeowner’s policies specifically exclude flooding. So any homeowner who wants to protect their homes from the risk flood damage can purchase a separate flood insurance policy.
Many insurance plans, including business interruption policies, also tend to exclude things like damage caused by war, government action, and “acts of God”.
But again, any business that wants to insure against those risks is free to seek additional coverage.
That’s the whole idea of insurance: customers are able to pick and choose which risks they want to insure against, and which risks they’re willing to take.
It’s fair to say that most business interruption policies don’t cover a worldwide pandemic that shuttered the entire global economy.
But there’s a growing trend now where state governments are proposing new legislation that would RETROACTIVELY force insurance companies to protect their policyholders against Covid.
This is totally nuts. The state governments are the ones that forced businesses to shut down.
Now they expect the insurance companies to pay for the consequences, even though the policies specifically state that they don’t cover this type of risk.
They might as well demand pay for every other uninsured hazard. Did your house flood and you didn’t have flood insurance? Well let’s retroactively force the insurance companies to pay for that too.
Pennsylvania, New York, Illinois, New Jersey, and several other states have proposed similar legislation, or threatened regulatory action.
(This trend is also picking up steam overseas; in the UK, for example, lawsuits are already pending against insurance companies for not paying out Covid-related claims.)
And given that just about EVERY business would qualify for this retroactive Covid coverage, there’s simply no way that the insurance industry would be able to afford such an indemnity.
Think about it– the federal government made $350 billion worth of loans available to small businesses earlier this month, and that money was 100% used up in about 2 weeks. And they just agreed on another $300 billion this morning.
So most insurance companies would be wiped out if this legislation passes… i.e. CUE THE GOVERNMENT BAILOUT of the insurance industry.
Just like airlines, hotels, hospitals, etc., the insurance company would be standing in line to suckle on that sweet taxpayer bailout teet, probably to the tune of another half-trillion dollars.
Of course, it goes without saying that the government doesn’t have the money for this.
We’ve explored the government balance sheet many times in the past: Uncle Sam is already in the hole by MINUS $23 trillion according to the Treasury Department’s most recent financial statements.
And, over the last few years, even when the economy was incredibly strong, the federal government still managed to lose more than a trillion dollars a year.
Now that they have a real crisis to contend with, the deficit is going to swell to an unimaginable figure.
Frankly it doesn’t matter whether or not the insurance companies end up footing the bill.
If the insurance companies re forced to pay up, the government will likely bail them out. Otherwise the government will bail out businesses directly.
Either way, it’s pretty obvious the government is going to spend an unbelievable amount of money they don’t have… which means the central bank (Federal Reserve) will keep printing more money.
That’s how the system works: whenever the government wants to bail someone out, the Federal Reserve first conjures the bailout money out of thin air, and then ‘loans’ it to the Treasury Department.
The Federal Reserve has already printed trillions of dollars since this crisis started, and that may only be the warm-up round.
The longer this lasts, the more money they’re going to print… and the more they’ll end up debasing the currency.
We are obviously living in extraordinary times, and it’s perfectly reasonable to hope for the best.
But it would be irresponsible to willfully ignore what the government and central bank are doing here.
Conjuring infinite amounts of money out of thin air could have incredibly destructive consequences on the currency.
And that’s why, as I’ve written before, it’s definitely time to consider owning some real assets.