Don’t foist costs of COVID on insurance providers
During a recent press conference, President Donald J. Trump stated that business interruption insurance — which generally covers direct physical damage to commercial property caused by disasters such as fires — should be used for business claims associated with COVID-19. However, because of the enormity of the costs associated with such a largescale event, virus claims have been specifically excluded from business policies since the aftermath of the 2002-2004 Severe Acute Respiratory Syndrome (SARS) epidemic, explicitly barring coverage for losses arising from communicable diseases.
By misinterpreting business interruption insurance, the president is instilling a false sense of hope in small business owners throughout Virginia. This type of insurance exists to pay the loss of income that a business suffers after a disaster, such as a fire. The income loss may be due to a covered disaster-related closing of the business facility or due to the rebuilding process after a disaster.
Similar to how a flood or earthquake is not covered in a homeowner’s insurance policy, an enormous event such as a virusrelated pandemic, which impacts everyone at the same time, would be excluded from coverage in a business interruption policy.
Let’s be clear though: Changes to business interruption policies during this pandemic would not provide the most effective relief to small business owners who need help now.
Premium pricing of an event such as a pandemic would be massively difficult, and the variables of pricing for a restaurant (large or small) versus a tire store for instance would be problematic and likely exceedingly expensive.
Additionally, as it is, the industry estimates that only 40% of all businesses have any form of business interruption coverage and only 30% of small businesses have it. Therefore, even if business interruption insurance were to change to cover this pandemic, only a minority of businesses would even receive relief from these policies.
Closure losses just for small businesses with 100 or fewer employees have increased from $255 billion to $431 billion per month. The estimate rises to about $900 billion per month if the threshold is raised to 500 employees. In contrast, the property/casualty industry — which covers business losses as well as automobile and home losses — has a total surplus of only about $812.2 billion as of September. What happens, then, if something else were to take place, such as a hurricane?
According to the National Association of Insurance Commissioners, “While the U.S. insurance sector remains strong, if insurance companies are required to cover such claims, such action would create substantial solvency risks for the sector, significantly undermine the ability of insurers to pay other types of claims, and potentially exacerbate the negative financial and economic impacts the country is currently experiencing.”
Forcing the insurance industry to cover losses they never charged for would be a catastrophe for our industry or any industry.
Proposals to make virus events covered retroactively would surely be challenged as unconstitutional and litigated in the courts for years — guaranteeing that no money would make it to small businesses that need help now. Congress has appropriately responded to the crisis with proposals such as the CARES Act for more targeted assistance.
While the Independent Insurance Agents of America represents independent insurance agents, we have been pleased to see how some insurance companies are responding to COVID-19. Some companies are reducing or refunding premiums, extending payment period due dates and reducing premiums in some business sectors. Most health insurers are covering certain services related to COVID-19 at 100%. Businesses and consumers should contact their agents on any insurance company adjustments.
Business owners should also continue to follow updates about the CARES Act and congressional discussions to learn more about assistance that can truly help. There are ways to ensure relief is granted to small business owners who need it but changing business interruption policies is not the most effective route.
Robert N. Bradshaw Jr.,