The Impact of COVID-19 on Business Interruption Insurance: A Deep Dive

The Staggering Cost of Business Interruption

The coronavirus pandemic has brought unprecedented challenges to businesses worldwide, with small businesses in the U.S. potentially facing business interruption losses as high as $383 billion per month, according to an Insurance Journal article. This figure represents 50 percent of the total available for the industry to pay all claims, highlighting the immense financial strain on the insurance sector.

Industry's Response and Capability

The American Property Casualty Insurance Association (APCIA) reports that this estimate is 10 times the most claims ever handled by the industry in one year. The industry processed more than three million claims from the 2005 hurricane season, which included Hurricanes Katrina, Rita, Wilma, and several other storms. APCIA president and CEO David Sampson suggests that as many as 30 million claims could be filed by small businesses that suffered losses from the pandemic. Despite the industry's limited business interruption coverage for pandemics, APCIA is open to discussing solutions with lawmakers to expedite economic recovery from future pandemics.

Support for a COVID-19 Relief Fund

A coalition of 36 business groups, including the insurance sector, has expressed support for a proposed COVID-19 Business and Employee Continuity and Recovery Fund. This new federal relief fund aims to assist businesses and workers affected by pandemic shutdowns, helping them retain and rehire workers, maintain employee benefits, and cover operating expenses such as rent. The fund could also provide financial assistance for payroll, lost income of sick employees, and lost business revenues. Insurers and other businesses would collaborate to create a streamlined process for reviewing and processing applications filed by companies seeking help. The relief fund would be managed by a special administrator within the Treasury.

For businesses, understanding their insurance coverage and potential gaps is crucial. It's advisable to review existing policies, consult with insurance professionals, and explore additional coverage options to mitigate risks during such unprecedented times.