Insurers: "Sorry, No Coverage for COVID"

Written by Tim Triplett

Manufacturers and distributors up and down the supply chain have been disappointed to learn that their insurance coverage does not protect them from the coronavirus. “Pandemic outbreaks are uninsured because they are uninsurable,” said David A. Sampson, president and CEO of the American Property Casualty Insurance Association (APCIA), the trade group for home, auto and business insurers.

Prudent steel suppliers often carry business interruption insurance designed to replace income that is lost if the business is forced to shut down due to an unexpected event such as a fire or natural disaster. This type of insurance also usually covers operating expenses, a move to a temporary location, payroll, taxes and loan payments. For business interruption losses to be covered, there typically must be physical loss or damage to property.

Some companies also carry trade credit insurance, which provides protection if a customer fails to pay an invoice or becomes insolvent. A trade credit insurance policy allows companies to feel secure in extending more credit to current customers or to pursue new, larger customers that otherwise would have seemed too risky. This type of coverage is especially favored by exporters, who run the risk of failed payments by customers in other countries.

Few times in history has business been more severely interrupted than in the past two months as federal and state authorities have ordered businesses closed and workers to stay home to stop the spread of the deadly COVID-19 virus. Few times in history have customers failed to pay their bills, or gone insolvent, at a greater rate. Yet companies with this catastrophic insurance coverage are no better off than those without it because of the unprecedented nature of this global pandemic.

Commercial insurance policies generally do not provide coverage for communicable diseases or viruses such as COVID-19, said the APCIA, and any action by the government or the courts to retroactively mandate such coverage would be ruinous for the insurance industry.

APCIA estimates that closure losses just for small businesses with 100 or fewer employees could total anywhere from $255 billion to as much as $431 billion per month, dwarfing the $6 billion per month in annual premiums the insurance industry takes in for all commercial property risks in the key insurance lines. Continuity losses for small businesses are approximately 43 to 72 times the monthly commercial property insurance premiums, which includes coverage for losses from such perils as fire, wind, hail and water leaks. The total surplus for all of the U.S. home, auto, and business insurers combined to pay all future losses is roughly only $800 billion.

Insurance is among the industries whose survival is threatened by the economic collapse caused by the coronavirus crisis, and the pandemic is not the only disaster to consider. “Insurance stability is especially important in a time of increased natural catastrophes. Spring flooding season is underway, hurricane season is around the corner, and wildfires pose a threat year-round,” noted Sampson.

Businesses that are denied coverage are likely to turn to the courts to seek redress, as they did following the 9/11 attack. However, judicial solutions take time and companies need assistance now. Insurers are among a coalition of companies supporting the proposed COVID-19 Business and Employee Continuity Fund. Modeled after the 9/11 Victims Compensation Fund, the government-funded program would provide additional liquidity to eligible businesses so they can maintain operations and retain and rehire employees.

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