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BUSINESS INSURANCE: California Business Interruption/Loss Of Income Insurance During COVID-19

Business Interruption Plans and Pandemic Exclusions

Normal business interruption plans do not cover losses from contagious diseases like COVID-19 or pandemics. These plans were not designed to address pandemic-related coverage, according to a report sent by major insurance organizations to California’s congressional delegation on Thursday.

Response from the Insurance Industry

The letter, addressed to members of Congress, responded to questions about the COVID-19 pandemic’s impact on standard commercial insurance plans and the exclusion of coverage for viruses and pandemics. The National Association of Mutual Insurance Companies (NAMIC), which represents insurers, issued the report. NAMIC emphasized that excluding pandemics like COVID-19 is a longstanding part of business interruption policies.

Structural Limitations of Current Plans

Insurer organizations stress that understanding the limitations of current business interruption plans is essential. These plans were never meant to cover pandemics. As a result, the financial risks from a global health crisis like COVID-19 fall outside of the policy’s coverage. Insurers have not made actuarial provisions for the potential costs of pandemic-related claims, which differ greatly from the risks these policies were designed to address.

Economic Impact on Small Businesses

Recent estimates suggest small businesses with fewer than 100 employees could face losses of up to $383 billion per month. This stark figure highlights the immense economic damage from the pandemic. In comparison, the entire U.S. property and casualty insurance industry is worth about $800 billion. The imbalance between business losses and the total insurance industry coverage underscores the difficulty insurers face in handling pandemic-related claims.

Maintaining Financial Stability in the Insurance Industry

The report also emphasized the importance of keeping the insurance industry financially stable. Insurers argue their main responsibility is to fulfill policyholder promises while maintaining industry health. If pandemic-related losses were covered under business interruption policies, it could destabilize the entire insurance market.

Insurer Support for Policyholders

While insurers continue to make prompt payments for claims where coverage exists, they are also discussing flexibility with consumers, such as adjusting premium payments to ease financial pressures. The industry aims to ensure policyholders get the support they’re entitled to under their policies, despite the broader challenges posed by the pandemic.

California’s Role in Addressing Business Interruptions

On March 26, the California Insurance Department asked insurers to provide information on business interruption, civil authority, contingent business interruption, and supply chain coverage in their commercial insurance policies.

State-Level Efforts to Address Coverage

California lawmakers have yet to introduce legislation requiring insurers to cover COVID-19-related losses. Other states, including Louisiana, New York, Ohio, Massachusetts, and New Jersey, have already introduced bills to address business interruption coverage due to the pandemic. These states are working to find ways to ensure businesses suffering from COVID-19-related shutdowns and losses can receive compensation through their insurance policies.

Pressure from Small Businesses

The issue has become a key concern for many small and medium-sized businesses hit hard by the pandemic. These businesses, struggling with government shutdowns and lower consumer demand, have urged lawmakers to step in and push insurers to provide pandemic-related coverage.

Industry’s Position and Future Proposals

On April 2, a significant letter was sent addressing the concerns of U.S. Democratic Representatives Gilbert Cisneros, Mike Thompson, and 31 other California legislators. Signed by major insurance industry groups, the letter detailed the challenges of including pandemic-related coverage in standard business interruption policies. It pointed out that the cost of coverage would be too high, especially in an already strained market.

Federal Pandemic Risk Insurance Backstop

Meanwhile, pressure is building for a federal pandemic risk insurance backstop. The proposal seeks to create a public-private partnership to address financial risks from future pandemics. Such a system could provide businesses with coverage during crises while also protecting the insurance industry’s financial health.

Support for Public-Private Pandemic Insurance

John Doyle, CEO of Marsh LLC, expressed support for a public-private pandemic risk insurance plan in a letter to clients. He emphasized the importance of such a program for economic recovery and to protect businesses from future pandemic risks. Doyle urged Congress and the Trump administration to support the plan, highlighting the need for quick action to protect businesses.