I know, I know, another Business Interruption post - enough, enough!
Except, well, not really:
To recap, Business Interruption coverage is supposed to help reimburse lost revenue due to a covered, physical loss (such as a fire, or a flood, etc). The issue at hand is whether or not a business forced to close because of the current pandemic is entitled to such reimbursement, since the physical structure remains intact (and distinct from a claim arising from actual contamination). As we've previously mentioned, the answer would presumably be 'No,' but that has since morphed to 'potentially Maybe.'
/sigh
So there's been a loud hue and cry from affected businesses that are facing significant cash flow (as in, zero or very little) problems because they've been forced to close (or drastically pull back). And of course there's increasing pressure on The Powers That Be© to "do something."
But is this wise, let alone appropriate? What should the government's role in this conundrum be (if any)?
Well, let's set the Wayback Machine to almost eleven years ago:
"It’s still far from the norm, but governments around the world are becoming increasingly involved in providing terrorism reinsurance. In addition to catastrophe cover, some are addressing business interruption ... Government involvement has become necessary ... as private insurers and reinsurers would otherwise step back from these risks – either by reducing their exposure or eliminating it completely."
Please note that last: "eliminating it completely."
But is that what really happened?
Well, as our friend and P&C Guru Bill M tips us, pretty much:
"[M]ost companies will probably find it difficult to get an insurance payout because of policy changes made after the 2002-2003 SARS outbreak ... led to millions of dollars in business-interruption insurance claims ... As a result, many insurers added exclusions to standard commercial policies for losses caused by viruses or bacteria."
With the (predictable) result that carriers have what appears to be a bullet-proof claims-denial capability.
So, as with the airline and travel industries (among others), there's a concerted, vocal effort for government intervention:
"[P]roperty and casualty insurance companies are facing growing pressure to tap the industry’s $822 billion in cash reserves.
Lawmakers in New Jersey, Massachusetts and Ohio are considering forcing retroactive policy changes to cover coronavirus business-interruption claims."
Counter-balanced against that, of course, is the (inconvenient?) fact that such coverage was never underwritten, and for which no premium has ever been paid.
#WhatCouldGoWrong?
But is this actually necessary? That is, what if there already existed a policy to cover these circumstances? Surely these would sell like corndogs at the state fair, right?
"Pandemic business insurance — complete with virus coverage — is offered by the broker Marsh."
Oh, that's great! So problem solved, right?
Turns out, not so much:
"It launched its outbreak insurance in 2018.
A few companies in the hospitality and gaming industries showed interest.
But not a single policy was sold."
So, given that, is there some role for government here?
One more trip in the WBM:
"[T]he Terrorism Risk Insurance Act of 2002 to create a “temporary” federal backstop against catastrophic losses. This program subsidized private risk with public funds through a cost-sharing program for which the government does not receive any compensation."
So, government as BI backstop may yet be "a thing."
Guess we'll just have to wait and see.
Except, well, not really:
To recap, Business Interruption coverage is supposed to help reimburse lost revenue due to a covered, physical loss (such as a fire, or a flood, etc). The issue at hand is whether or not a business forced to close because of the current pandemic is entitled to such reimbursement, since the physical structure remains intact (and distinct from a claim arising from actual contamination). As we've previously mentioned, the answer would presumably be 'No,' but that has since morphed to 'potentially Maybe.'
/sigh
So there's been a loud hue and cry from affected businesses that are facing significant cash flow (as in, zero or very little) problems because they've been forced to close (or drastically pull back). And of course there's increasing pressure on The Powers That Be© to "do something."
But is this wise, let alone appropriate? What should the government's role in this conundrum be (if any)?
Well, let's set the Wayback Machine to almost eleven years ago:
"It’s still far from the norm, but governments around the world are becoming increasingly involved in providing terrorism reinsurance. In addition to catastrophe cover, some are addressing business interruption ... Government involvement has become necessary ... as private insurers and reinsurers would otherwise step back from these risks – either by reducing their exposure or eliminating it completely."
Please note that last: "eliminating it completely."
But is that what really happened?
Well, as our friend and P&C Guru Bill M tips us, pretty much:
"[M]ost companies will probably find it difficult to get an insurance payout because of policy changes made after the 2002-2003 SARS outbreak ... led to millions of dollars in business-interruption insurance claims ... As a result, many insurers added exclusions to standard commercial policies for losses caused by viruses or bacteria."
With the (predictable) result that carriers have what appears to be a bullet-proof claims-denial capability.
So, as with the airline and travel industries (among others), there's a concerted, vocal effort for government intervention:
"[P]roperty and casualty insurance companies are facing growing pressure to tap the industry’s $822 billion in cash reserves.
Lawmakers in New Jersey, Massachusetts and Ohio are considering forcing retroactive policy changes to cover coronavirus business-interruption claims."
Counter-balanced against that, of course, is the (inconvenient?) fact that such coverage was never underwritten, and for which no premium has ever been paid.
#WhatCouldGoWrong?
But is this actually necessary? That is, what if there already existed a policy to cover these circumstances? Surely these would sell like corndogs at the state fair, right?
"Pandemic business insurance — complete with virus coverage — is offered by the broker Marsh."
Oh, that's great! So problem solved, right?
Turns out, not so much:
"It launched its outbreak insurance in 2018.
A few companies in the hospitality and gaming industries showed interest.
But not a single policy was sold."
So, given that, is there some role for government here?
One more trip in the WBM:
"[T]he Terrorism Risk Insurance Act of 2002 to create a “temporary” federal backstop against catastrophic losses. This program subsidized private risk with public funds through a cost-sharing program for which the government does not receive any compensation."
So, government as BI backstop may yet be "a thing."
Guess we'll just have to wait and see.
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