While Californians stay home to reduce the risk of transmission of COVID-19, businesses are starting to grapple with income loss. In commercial insurance, a policy with business interruption (BI) can cover lost profits, rent, utilities and clean-up costs. It less often provides transition expenses and payroll. About 30% of small businesses (less than 50 employees) have BI coverage.
Understandably business owners are asking questions about business interruption insurance, particularly if they are covered during the stay at home order. However, typical BI coverage is only triggered by physical damage to a property and covers the period to repair the damage.
BI covers physical damage because it is temporary and repairable. Viruses, such as COVID-19, are not insurable because they are enduring and incurable. Insurance companies create limitations in their contracts to better predict risk, and the goal is to ensure coverage for all your customers. The rates customers pay for BI reflect this level of coverage.
As business owners learn more about BI coverage, they contact their legislators – who then reach out to us. It’s our job to communicate not only the limitations of coverage, but also why the limitations exist. Insurance contracts are not created in a vacuum. If insurers cover a risk that we did not receive payment for, we will go bankrupt. Rewriting insurance contracts to provide BI coverage threatens US and global financial stability.
PIFC staff continues to monitor the business interruption issue and, most importantly, be available to legislators who have questions. The more PIFC can be a good resource to policymakers, the better we can protect the insurance industry in California.