Do You Qualify for Business Interruption Insurance?

One of the most pertinent topics in enterprise risk management is why business interruption insurance doesn't cover the coronavirus. The pandemic's primary impact is that many businesses faced severe business interruption during the early stages of the lockdown.

Many organizations that used traditional private insurance solutions didn't receive any coverage and had to shut down. Keep reading to learn more about business interruption insurance and whether your business qualifies!

Why Is Business Interruption Insurance Not Covered On Traditional Insurance Policies?

One of the main features of business interruption insurance is that it is written as part of the commercial property or business owner's policy. Another feature is that most agreements state they will offer coverage if the property is damaged physically.

That makes risk management for business interruption insurance difficult. The main reason is that business interruptions don't only occur because of physical damage. They may also occur due to a civil authority commanding operations to shut down. Many traditional business interruption insurance policies explicitly state they won't offer coverage in a bacterial or viral event.

Many question whether they qualify for business interruption insurance due to the coronavirus.

The COVID-19 Coverage Controversy

There are two sides to every situation, and we will discuss both. Here's everything you need to know about the problem.

The Insurance Companies

Insurance companies' answers will not please businesses. They will not say they don't cover business interruption caused by the coronavirus because there is no physical damage to the property.

While it might seem like an unfair policy, when you look at the actual figures, it makes sense why insurance companies don't offer business interruption coverage due to the coronavirus.

Insurance companies collect an average of $4 to $5 billion monthly, which might seem like a lot of money. However, statistics estimate that small businesses and organizations lose close to $250-400 billion monthly in revenue due to the pandemic. That means insufficient money to provide businesses with the help they need there is 

However, insurance companies typically offer coverage if an inspector shuts down a business after a structural inspection. This raises the question: Why is there a discrepancy between the two situations?

Historical Context: The SARS Impact

After the SARS virus outbreaks in 2001 and 2002, insurance companies adjusted their policies to explicitly state that they wouldn't offer coverage due to a bacterial or viral outbreak. However, that wasn't the case for all insurance providers, and some policies still provide coverage.

The most prominent example that people offer is Wimbledon. Wimbledon was forced to stop in 2020. However, their insurance policy specifically stated they would receive coverage in a bacterial or virus-related outbreak.

Government Intervention Attempts

The state is trying to intervene in the issue between small businesses and insurance companies in three major ways.

The first way the government is trying to get involved is by changing the policy's language. This is a very risky route to take, as the policy is enshrined in the contract agreed upon by two parties. Altering the words without the proper caution is a dangerous strategy.

The second way is by forcing insurance providers to expand the meaning of property damage. Currently, property damage only takes into consideration actual physical damage to the property. To aid small businesses, the government pressures insurance providers to include the damage from a viral outbreak in their definition of "property damage."

The third and final method the government is using to intervene is forcing insurance companies to pay these claims. Afterward, federal or state funds will reimburse the insurance companies. If the government continues to do this, the insurance industry could be out of business in two to six months.

Captive Insurance Is A Viable Solution

Captive insurance structure gives you much more control over the terms of the policy. The concept is essentially you writing your specific insurance policy. It allows organizations to write detailed coverage policies for any business interruption.

Businesses that already had a captive insurance structure could have escaped the brunt of the pandemic. Therefore, more organizations should switch to a captive insurance structure in the future.

It will allow organizations to write their policies according to their needs and help reduce the burden on the insurance industry. The pandemic has hit small businesses hard, but the future is starting to look bright again!

Discover if a captive insurance company is the right fit for your business.

Click the link to start the assessment:

https://www.riskmgmtadvisors.com/captive-insurance-fit-assessment