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Cost of COVID-19 BI losses for small firms dwarfs annual premiums: APCIA

7th April 2020 - Author: Luke Gallin

Business continuity losses for small businesses as a result of the COVID-19 pandemic could reach between USD 255 billion and USD 431 billion per month, which is significantly higher than monthly commercial property insurance premiums, says David Sampson, President and Chief Executive Officer (CEO) of the American Property Casualty Insurance Association (APCIA).

Following news of legislation designed to force insurers to retroactively cover business interruption losses currently not covered under existing policies, regardless of any virus exclusion, as a result of the COVID-19 pandemic, the APCIA has been vocal about its opposition.

The organisation’s President and CEO voiced his concerns over such legislation, warning that it would have a negative impact on insurer stability at a time when it’s needed most.

Initially, New Jersey was the only state looking to introduce business interruption legislation driven by the impacts of the coronavirus outbreak. Ultimately, it was held by the New Jersey Assembly, but it’s believed that a revised Bill will be put forward in the near future. Furthermore, other states in the U.S. have also noted a push for legal action to eliminate the virus exclusion and force insurers to cover losses.

Previously, Sampson said that based on analysis, continuity losses for small businesses with 100 or fewer employees could fall somewhere between USD 220 billion and USD 383 billion per month.

Gallagher Re

Now, after further analysis, the APCIA estimates that this figure has increased to USD 255 billion to USD 431 billion per month.

“These numbers dwarf the annual premiums for all commercial property risks in the key insurance lines of $71 billion per year, or about $6 billion a month.

“Continuity losses for small businesses are approximately 43 to 72 times the monthly commercial property insurance premiums, which includes coverage for losses as a result of such perils as fire, wind, hail, and water leaks.

“The total surplus for all of the U.S. home, auto, and business insurers combined to pay all future losses is roughly only $800 billion, with the combined capital of the top business insurance underwriters representing only a fraction of that amount,” says Sampson.

He again underlines the importance of insurer stability during a time of increased natural catastrophe events, warning that forced, unexpected costs for companies will likely hinder their ability to pay valid claims.

“Pandemic outbreaks are uninsured because they are uninsurable,” says Sampson.

Adding, “APCIA supports the federal assistance programs that deliver aid directly to vulnerable business communities, particularly affected small businesses. Last week, insurers joined a broad coalition of our customers to advance the COVID-19 Business and Employee Continuity Fund to leverage the ability of the private sector to scale and deploy additional liquidity to our communities.”

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