Understanding Business Interruption Insurance: A Comprehensive Guide

Business Interruption Insurance: What It Covers and What It Doesn't

Business Interruption (BI) Insurance is a type of coverage that compensates a business for its lost income during events that disrupt its operations. These events typically include physical damage to the property, such as fires or floods. However, BI policies do not cover pandemics, as highlighted by Evan Greenberg, CEO of Chubb, during a recent earnings call. Greenberg emphasized that BI policies are designed to cover direct physical loss or damage, which a pandemic like COVID-19 does not cause.

The Uninsurable Nature of Pandemics

The insurance industry has long recognized that pandemics pose an uninsurable risk due to their massive, open-ended nature. State insurance regulators have been clear that standard BI policies do not cover pandemics, and the industry could not sustain the financial burden of such risks without threatening its solvency. According to a report by the Insurance Information Institute, the cost of covering a pandemic could exceed $1 trillion, far beyond the industry's capacity.

The Role of Government and Future Solutions

Greenberg suggested that the federal government should take the lead in mitigating pandemic risks, as the private insurance industry alone cannot handle such a colossal risk. Chubb has proposed a Pandemic Business Interruption Program that involves a public-private partnership. This model aims to share the risk between the government and insurers, making pandemic coverage more feasible. A similar approach was taken during the 2005 Hurricane Katrina, where the federal government played a significant role in disaster relief.

For businesses considering BI insurance, it's crucial to understand the limitations and carefully review policy terms. Additionally, exploring options for pandemic-specific coverage or government support programs can provide a more comprehensive risk management strategy.