Business Interruption Insurance to the Rescue....? Did you REALLY think it would be that easy!

Policyholders finding out that business interruption insurance doesn't cover coronavirus | The Atlantic

I was fortunate earlier in my career to work directly with my employer’s risk management department for guidance and feedback as well responsible for most of the insurance accounting for our organization.  Along with previous audit experience of some smaller insurers, I received a world of insight into the world of insurance, including coverage types, specialty insurance, coverage limitations, reinsurance, premium increases (even when costs are flat or going down), and insurance reserves.

If not already obvious, it’s simple to understand that insurance companies are designed to come out on the positive end of premiums received minus claims paid, especially over the mid and long term (reserves help cover acceptable short and long term losses & risks) …..they are in the business of making money.  No, while it's not exactly Vegas, the odds are on the carrier side by using a laundry list of people and means to do so, including: actuaries, risk models, historical experience, premium methodology, client selection process, risk weighting, coverage types provided especially by area & region, coverage limits, and so much more. So, a tremendous amount of information is considered, and we should all get why, as when a carrier fails, everyone seems to lose.

The purchase of this insurance probably starts out something like this with a business owner talking to an agent, "I need to make sure that I have enough coverage for me/my business so if something (catastrophic) major happens and I can't open my doors for more than a couple days, months, or possibly forever, I'll have plenty of protection in place for at least a period of time so I don't lose everything."

The agent’s response, "sure thing, business interruption insurance would be perfect for you. If some major event occurs (excluding those covered by other types of insurance) forcing you to close for several days or weeks, then the policy will provide X dollars a month for X months."

Yes, a bit simplistic but this does occur, and I understand both sides of it, including an agent acting in good faith.  Yet, chances are other than price, the small business owner is hooked, and along with their other coverages think they are fully covered, with the rest being noise and fine print. The carrier knows they've covered a majority, if not near ALL the major risk factors (along with other types of insurance coverage) a business will encounter. However, the carrier ABSOLUTELY KNOWS the owner is nowhere near fully covered, which is the part I really can't stand and needs to change in some meaningful way as this happens all too often.

Now with the entire world being caught in the clutches of the Coronavirus (Covid-19) pandemic we’re hearing the stories once again of insurers denying claims and this time it’s about business interruption insurance, just when businesses need it most.

From the Article in The Advocate https://ramlcpa.link/935ca ...., ​Bill Davis, a regional spokesman for the Insurance Information Institute said:

“They all contain generally the same language, but there’s always the oddball policy,”
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“This is a hard thing for underwriters to price coverage,” he said. “We’re plowing new ground here.”
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“Things the size of 9/11 or COVID-19, the federal government is the only one with pockets deep enough to handle,” 

This response is telling and shows why the excuses need to stop, while solutions being found.
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A fact of life is there will always be one off crises & events putting money and lives at risk.  Including man made events there have been at least three (3) major world effecting events in the past 20 years which have changed are lives forever (9/11, the 2008 Financial Crisis, and Covid-19).  If you count more localized disasters and events (Katrina, Fukushima, Thailand to name a few…. its 6+ easy, likely closer to 10) this number gets more unsettling very quickly. 

As bad as that may sound, if we look back through the 20th century (I know, history shows how great we are at looking to the past for insight, as why learn something from our past troubles or mistakes) this shouldn’t be much of a surprise, as its littered with events & crises every decade while wiping away billions of dollars & lives in the process (Vietnam, Korea, WWII, WWI, and the Great Depression to name some of the largest).  The one certainty is uncertainty, which is exactly what insurance is for.

So, while pricing in a specific unknown world or local event may be difficult for the carrier, it makes no difference to a business owner if their doors are shut due to a virus, a tsunami, or war. Yes, property damage does matter but that is the easy part.  While this is not a new problem, it is a lot more fixable especially if measures are setup before the next crisis hits and provide more favorable back stops by the government, especially for things that an insurance policy can't be expected to cover. Thus, they can be structured in far more favorable ways for business owners and everyday taxpayers instead of just another last-minute bailout.

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