This is an excruciating time for the nation’s small businesses and those who depend on them. In the early days of the pandemic, as the scale of the crisis and its impact on the business community was beginning to come into view, Sentinel provided analysis and perspective on the question that was on everyone’s mind: Would business income insurance policies cover losses caused by COVID-19 disruptions? (Read the full response, here.) The short answer was then, and remains, no.
Since then, small businesses in the U.S. have racked up more than $400 billion in lost income, and many feel they’ve been shut out of the federal stimulus plan designed to carry them through the worst of the pandemic’s economic downturn. With coronavirus poised to become the single most expensive insurance event in history, the question now is: Who will bear the burden of these catastrophic losses, and how, and when?
Class action lawsuits filed in several states are consolidating efforts around a central theme; whether viral contamination constitutes true physical damage sufficient to trigger coverage for businesses under a government-ordered shut down.
The insurance industry’s position has been clear from the start. With no underwriting mechanism in place to cover a pandemic event that impacts nearly every person on the planet, and with viral and bacterial pathogens specifically excluded in many business income policies, the industry says it could very well buckle if forced to pay out even a portion of the uncovered claims.
Amid calls for Congressional lawmakers to step in and force the hand of insurers, Sentinel agrees with industry analysts, that the more likely path is the establishment of a government-subsidized pandemic insurance plan, similar to one created after 9/11 for terrorism insurance. In the long term, such a plan would provide a government backstop against insurance industry losses in the event of future pandemics. A limited amount of coverage would be provided retroactively to businesses with COVID-19 losses, though how much, and when those funds would be available, is anyone’s guess at the moment.
What does it all mean for the small business owner whose immediate concern is making payroll and keeping the lights on? What matters now is what you can do today to be in the best possible position to get help once it’s available, whatever form it may take.
Sentinel’s advice remains the same.
- Document business COVID-19 losses and expenses.
- Separate revenue and expenses between U.S. and non-U.S., if applicable.
- File a claim for what you believe to be a covered cause of loss, and include the following:
- Reduced gross revenue as compared with comparable prior year period
- Reduced gross margin as compared with comparable prior year period
Note: With business income, insurers generally will pay the net income (think of this as the profit or loss before income taxes) that would have been earned or incurred by the insured, and the continuing normal operating expenses incurred, including payroll.
4. File the claim directly with your carrier, or email Sentinel’s claims team at email@example.com and we will file the claim on your behalf.
For more information on Sentinel’s claims process, for a carrier directory, or to contact a member of our claims team directly, click here.