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Covid-19 BI losses for small firms could hit $383bn per month, warns APCIA

27th March 2020 - Author: Luke Gallin

David Sampson, President and Chief Executive Officer (CEO) of the American Property Casualty Insurance Association (APCIA), has said that business continuity losses from the COVID-19 pandemic for small businesses with fewer than 100 employees, could reach as much as USD 383 billion per month.

virusSampson has again warned against measures being sought by some to force insurers to pay for business interruption losses currently not covered under existing policies, in light of the impacts caused by the ongoing global coronavirus outbreak.

Previously, Sampson had said that forcing insurers to pay for such losses threatens the stability of the insurance sector, which, at this time and especially during times of increased natural catastrophes, is vitally important.

His comments reflect efforts in New Jersey, and subsequently the states of Massachusetts and Ohio, to push for legal action to eliminate ‘virus’ exclusions on existing business interruption insurance policies. If enacted, such a law would retroactively rewrite existing policies, which, according to Sampson, would add new risks to the promises that were made to customers and ultimately have a negative impact on market stability.

Now, Sampson has reiterated his concerns and also offered some insight into the potential cost of business interruption losses for small businesses with 100 or less employees, the types of firms that the COVID-19 business interruption legislation is targeting.

“Any action to fundamentally alter business interruption provisions specifically, or property insurance generally, to retroactively mandate insurance coverage for viruses by voiding those exclusions, would immediately subject insurers to claim payment liability that threatens solvency and the ability to make good on the actual promises made in existing insurance policies.

“APCIA’s preliminary estimate is that business continuity losses just for small businesses with 100 or fewer employees could fall between $220-383 billion per month.* 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,” he said.

Adding, “For perspective, our industry responded to more than three million claims, the most ever handled by the property casualty industry due to catastrophes during the 2005 hurricane season that included Hurricanes Katrina, Rita, Wilma, and several others. While a significant number, it dwarfs in comparison to the potential for 30 million or more claims from each of the small businesses operating in the United States today.”

Analysts have said that it’s unlikely laws of this nature will be passed as they would be challenged considerably by insurers in court, just as was the case in the aftermath of hurricane Katrina. In New Jersey, the legislation failed to pass but it’s been reported that a revised version of the Bill is set to be voted on imminently.

However, while the business interruption proportion of the insured loss is expected to be limited, the wide-reaching nature of the pandemic means that many lines are likely to be impacted, including event cancellation and travel, for example.

The number of confirmed cases in the U.S. has now surpassed that of China, while the death toll continues to rise in numerous states, most notably New York.

Sampson again stressed that P/C insurers in the country understand that businesses are facing unprecedented disruption and challenges, underlining a number of ways in which some insurers are helping their clients.

“Many insurers and agents are implementing new measures to directly help policyholders. Insurers are adopting new technologies and remote solutions to minimize any interruptions in service. Meanwhile, even as insurers are protecting the safety of their employees and transitioning to remote workplaces and implementing employee travel bans, our industry is handling claims as we always have,” said Sampson.

“We will continue to work with the Administration, Congress, governors, state legislatures, and state insurance regulators to ensure our nation recovers from this crisis, and to provide effective relief to those most vulnerable, as well as forward-looking answers that speed economic recovery from future pandemics,” he concluded.

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