While most small business owners carry insurance to help cover losses due to extended closures, the current situation is uncharted territory for many insureds and their carriers, according to Michael Angelina, executive director of Saint Joseph’s Maguire Academy of Insurance and Risk Management.
“Most property insurance policies provide business interruption coverage to protect against instances when a business can’t operate due to physical damage from a fire, hurricane or other natural disaster. Most do not specifically cover losses due to a virus, some are explicit about excluding it, and other policies are vague,”says Angelina. “Many policies provide coverage for business shutdown due to an act of civil authority as well. But the key policy trigger in these coverages is the term ‘direct physical loss’.”
He noted that larger businesses may have policies that specifically cover pandemics. Insurance for pandemic losses is available in the commercial market, yet few organizations purchase this coverage – much like earthquake insurance. In other cases where the wording on the traditional policies is less clear, there will be litigation to ultimately decide whether the loss from coronavirus will be covered – or that it won’t.
“The larger insureds of the world are likely going to have this in their insurance program, the more sophisticated insurance buyers probably have this covered,” Angelina says. “The people I worry about are the smaller groups – your local pizza shop, favorite breakfast place, or other small business.”
Angelina says the pandemic will also likely lead to some long-term changes in the insurance industry. For example, pandemic insurance could become a more traditionally purchased standalone product, like flood or earthquake insurance.
“Insurers likely have not been charging for pandemic losses to be included in a policy, if they are forced to begin including it, they will need to start charging for this additional coverage,” he says.
Angelina also expects commercial insurance rates to continue to climb as the insurance industry pays for these losses.