Small business interruption insurance providers have denied coverage for closure losses due to coronavirus. Listen to the top insurance companies in America talk about COVID-19 and closure insurance. See why major insurers have denied coverage to policyholders.
Insurance Companies in America Talk About COVID-19: No Coverage
“Many commercial insurance policies, including those that have business interruption coverage, do not provide coverage for communicable diseases or viruses such as COVID-19. Pandemic outbreaks are uninsured because they are uninsurable."
David A. Sampson, the president and CEO of the American Property Casualty Insurance Association (APCIA)
The U.S. Treasury Department supported insurance companies denying payout on COVID-19-related business interruption claims. It explained that payouts actually conflict with the contractual nature of insurance obligations. Issuing such payouts would literally take an act of Congress. It would mean retroactively changing the terms of agreements.
IMA Financial Group, in its COVID-19 FAQ, explained, "Business interruption claims are only triggered by a physical loss or by damage to the property." It lists fires and earthquakes as examples.
It went on to explain that "Pandemics don’t traditionally result in damaged property." Thus, most commercial property insurance policies do not cover such business interruption losses.
Insurance Companies in America Talk About COVID-19: Losses far Exceed Premiums
Aside from their non-obligation, insurance companies have another reason for not approving claims. They do not have the capital to cover them.
APCIA estimated small business closure losses during the COVID-19 crisis. For enterprises with fewer than 101 employees, they have reached $255 to $431 billion a month.
Premiums for all commercial property risks, in key insurance lines, on the other hand, amount to much less: about $6 billion a month. That is "43 to 72 times the monthly commercial property insurance premiums."
Small business interruption insurance typically doesn’t cover short interruptions, such as power outages. Nor does it cover partial interruptions, like scaled-back operations. It simply doesn't protect against losses unrelated to property insurance, such as lost profits from the coronavirus.
Insureon, the independent marketplace for small business insurance also defended the insurers' position. And, its website discussed business interruption insurance.
It says that policies do not "protect against losses unrelated to property insurance." As an example, it specifically lists the coronavirus.
Warren Buffet, of Berkshire Hathaway, also commented on business income insurance. First, he pointed out that the "primary ops aren’t big providers of business interruption coverage."
But, he said, “You don’t automatically get coverage if you have a business interruption." He also noted that many policies would not respond to claims for businesses shut down by the pandemic. “But other policies do."
Some Policies May Expressly or Implicitly Include Coverage
Insurance company financial managers know what their companies can and cannot cover. That's why they use such specific language in their policies.
Some insurers, as noted by Buffet, do cover pandemic events. They may find themselves paying out on small business interruption claims.
Many small business owners have challenged denied claims, and they're taking companies to court. In these instances, lawyers argue that policies may have included details encompassing pandemics.
In other cases, they may have simply failed to exclude the possibility. If the courts agree, these insurance companies may have to make good on claims.
Insurance Companies in America Talk About COVID-19
In general, insurance companies have not been on the vocal end of the small business interruption claims. That is because their policies simply cover closure due to material damage. They do not cover pandemics.
In addition, insurance, by design, cannot afford to cover pandemic closures. Of course, for that reason, they do not include quarantines in their policies.
So, insurance companies in America talk about COVID-19 from the standpoint that they cannot legally help. Their policies generally exclude such disasters, and their financial structure disallows coverage.
If you have questions about your small business interruption insurance, a professional insurance broker can provide valuable insights.