With many businesses having had operations suspended for more than a month, the topic of business interruption insurance is as live as ever.
On Tuesday, a leading insurance trade group contended that the federal government will have to bail out businesses wrecked by COVID-19 interruptions.
“Only the federal government can be the bridge for a crisis of this proportion,” asserted David A. Sampson, President and CEO of the American Property Casualty Insurance Association.
Insurers back help from the COVID-19 Business and Employee Continuity and Recovery Fund and hope to see it in the next federal COVID-19 relief package.
The potential losses, per APCIA, would overwhelm the sector without federal help.
For businesses with fewer than 100 employees, so-called “closure losses” could be as much as $431 billion a month.
Even the lowball estimate, $255 billion, is said to “dwarf the premiums,” estimated at $4.5 billion a month.
For businesses with fewer than 500 employees, potential arrears exceed $668 billion dollars.
The math in that scenario is particularly perilous.
“That means continuity losses for small businesses with fewer than 500 employees are in the general range 85 to 150 times the monthly relevant commercial property insurance premiums, which includes coverage for losses as a result of perils as fire, wind, hail, and water leaks,” the trade group contends.
The big takeaway: “Surplus for all of the U.S. home, auto, and business insurers combined to pay all future losses is roughly $800 billion, with the combined capital of the top business insurance underwriters representing only a fraction of that amount. Surplus represents dollars held by companies, required by law, to pay future losses for existing contracts.”
Office of Insurance Regulation (OIR) Commissioner David Altmaier described on Friday the frustration businesses are experiencing.
“All business interruption policies are written differently,” but most do not address a “pandemic such as COVID-19,” Altmaier told the Agriculture, Finance, Government, Healthcare, Management and Professional Services Committee.