Will the fidelity market experience the one-two punch of lower premium volume and increased claims activity in what has traditionally been a low-risk, and growing, category? While concerned about fidelity bond customer demand in the near term..
“Stay-at-Home”: List of Essential Services Matters Greatly to the Surety Industry
Author: Suretypedia Team
Posted On: 03-21-2020
Updated On: 04-01-2020
Based on a reading of articles from major news outlets, one cannot be faulted for assuming that the “Stay-at-Home” Orders issued by two very large state economies and bellwethers for the nation, New York and California, limit residents to only essential activities such as grocery shopping, trips to the pharmacy and getting some fresh air. However, key sectors of the economy, some of which are the largest aggregate customers in the surety business, namely construction, are deemed “Essential Services” and are therefore largely exempt from the Orders.
It is important to note that while California and New York each recognized construction it is not listed by the Department of Homeland Security as one of the Federal critical infrastructure sectors. Therefore, should the Trump administration issue a national “Stay-at-Home” type order, there are no guarantees that construction would be deemed essential.
We believe this analysis is important for both the readers of Suretypedia who provide surety bond services and bond principals.
Surety carriers, agents, brokers and claims consultants need to know who is permitted to operate under the Orders to manage resource allocation within its offices as well as for underwriting. If segments of the economy are not operating, they are far less likely to require surety bonds in the near term and therefore any personnel surety companies and agencies have to support those industries may suddenly find themselves with excess capacity that could be better directed elsewhere. Moreover, if a segment of the economy is not operating or operating under severe constraints, it may experience significant drops in revenue and in some cases generate no revenue at all, creating unprecedented strains on balance sheets and liquidity profiles in certain cases.
In addition, bond principals may not be aware that their business is deemed essential and therefore may unintentionally not operate by their own volition. When a business is not operating for an indefinite period of time, surety bonds and insurance are probably the furthest thing from the owners’ minds. This is especially true of small businesses that represent the vast majority of license and permit bonds, and even smaller performance and payment bonds.
We think it is also important to note to our readers that insurance is on the list of Essential Services. While many carriers and agents in California, New York and beyond have already shifted to working from home, some businesses are not prepared for their entire staff to work remotely, and we believe that so long as proper social distancing and sanitation measures have been put in place and all at-risk employees are sent home, it is important for these businesses to continue operating.
Why is the Definition of Essential Services Important?
As the number of COVID-19 cases rapidly increases in the U.S., states experiencing the fastest growth of cases are taking extraordinary measures to limit the spread of the virus. In the past two days, California and New York have issued Stay-at-Home Orders requiring all individuals living in these states, especially those working in non-essential service areas, such as restaurants, bars, entertainment venues and gyms, to work from home until the Orders are lifted. All non-essential businesses must close their offices and stores and 100 percent of their employees must work from home. However, we felt it was paramount to inform our readers that both states have outlined certain “essential services” considered critical infrastructure that are exempt from the Orders.
In California, the following services are exempt under the Order: services needed to maintain continuity of operation of the Federal critical infrastructure sectors, critical government services, schools, childcare, and construction, including housing construction.
There are 16 Federal critical infrastructure sectors which include the following:
- Chemical Sector
- Commercial Facilities Sector
- Communications Sector
- Critical Manufacturing Sector
- Dams Sector
- Defense Industrial Base Sector
- Emergency Services Sector
- Energy Sector
- Financial Services Sector
- Food and Agriculture Sector
- Government Facilities Sector
- Healthcare and Public Health Sector
- Information Technology Sector
- Nuclear Reactors, Materials, and Waste Sector
- Transportation Systems Sector
- Water and Wastewater Systems Sector
In New York, the essential services exempt from the Stay-at-Home Order include: shipping, media, warehousing, grocery and food production, pharmacies, healthcare providers, utilities, banks and related financial institutions. Also, construction including skilled trades such as electricians, plumbers and other related construction firms and professionals for essential infrastructure or for emergency repair and safety purposes is exempt from the New York Order. A full listing of the businesses exempt can be found in this guidance from New York State. Non-compliance by businesses may result in fines or summonses. New York is allowing businesses not otherwise designated as exempt to apply for exemption as an essential business with the following restrictions:
- Any business that only has a single occupant/employee (i.e. gas station) has been deemed exempt and need not submit a request to be designated as an essential business.
- Businesses ordered to close on Monday, March 15, 2020 under the restrictions on any gathering with 50 or more participants, including but not limited to, bars, restaurants, gyms, movie theaters, casinos, auditoriums, concerts, conferences, worship services, sporting events, and physical fitness centers, are presumed to be compliant with NYS issued restrictions and must remain closed and are not eligible for designation as an essential business for purposes of this guidance.
From the time of posting, additional States and Counties have enacted orders for their citizens to "Stay-at-Home" or "Shelter-in-Place." Click on the image below for a full list of States, Cities and Counties currently under such restrictions.
* Due to the fluidity of this situation, we will be updating this article as new developments occur.