Unlocking the Mystery: Business Interruption vs. Event Cancellation Insurance

Business Interruption: Physical Damage Required

As the COVID-19 pandemic unfolded, the debate over whether business interruption provisions in commercial property insurance apply to COVID-19-related losses became a significant issue. Suits have been filed seeking to establish that policyholders are entitled to coverage for such losses – even when losses associated with infectious disease are specifically excluded in the policy language.

Event Cancellation Insurance

COVID-19 has led to the cancellation of events from weddings to business conferences to the Tokyo Summer Olympics. Individuals and businesses buy event cancellation insurance against losses resulting from a cancellation due to circumstances beyond their control, including weather or other natural events like hurricanes, tornadoes, and earthquakes, and human-caused events such as labor strikes and acts of terrorism.

Comparing Coverage and Real-World Impact

A key difference between business interruption and event cancellation insurance is the requirement for physical damage in the former. According to a survey by the Insurance Information Institute, only 35% of small businesses have business interruption insurance, and many of these policies exclude coverage for pandemics. On the other hand, event cancellation insurance can cover pandemics if the policy is 'all-cause' or specifically includes communicable diseases. For instance, Wimbledon's organizers were among the few who bought event cancellation insurance that specifically included coverage for 'communicable disease' after the 2003 SARS outbreak, paying about £25.5 million (US$33 million) in premiums since then and receiving around £114 million (US$142 million) for this year's cancelled tournament.

In conclusion, understanding the nuances between business interruption and event cancellation insurance can significantly impact your financial preparedness. For businesses, it's crucial to review and possibly update insurance policies to include pandemic coverage, especially in light of the ongoing COVID-19 situation. For event organizers, considering 'all-cause' or disease-specific event cancellation insurance could provide substantial financial protection.