Former New York state superintendent of insurance Howard Mills shared his perspective with Best's Review on the importance of a strong insurance market for the U.S.' economic recovery from the pandemic. Similarly, Forbes contributor Joshua Stein published an article explaining business interruption (BI) insurance and why contracts do not cover pandemic losses. The articles shed light on the following key points:
- Standard business interruption insurance policies necessitate direct physical damage to property and are not designed to cover losses from pandemics.
- "Pandemic is an excluded loss in the standard business interruption insurance policy because it is an uninsurable event. Business interruption insurance covers financial losses, such as lost income or operating expenses, when a business cannot function because of physical damage to a commercial property—think fire, hurricane, tornado or damage caused by civil unrest," writes Mills. "These losses, which insurers pay out claims for every year to re-build American businesses, are limited to specific areas and time frames and thus make the spreading of risk possible and, as a result, business interruption insurance is readily affordable. This is how insurance works.
- "Business interruption coverage is not a stand-alone insurance policy that covers just any interruption of business. If such a policy were to exist, how would one define the interruptions of business that trigger coverage?" reports Stein. "It’s just not practical for an ordinary property insurance policy to cover every possible business interruption, except one arising from direct physical loss."
- Retroactively forcing insurers to cover losses from pandemics threaten the solvency of the market, hence prohibiting it from covering existing contracts and helping rebuild the economy.
- "What those who would retroactively force insurers to cover pandemics through BI policies need to understand is that this would devastate industry surplus and jeopardize the financial stability of the property/casualty industry and further damage the U.S. economy and delay the recovery. Business owners would not have the ability to purchase affordable BI insurance and would be deprived of coverage when non-pandemic disaster strikes," says Mills.
- "Any such retroactive rewrite of insurance policies would be just like retroactively revising a construction contract to say that the contractor must build a two-story house instead of the one-story house the contract required, but the contractor can’t charge a penny more for the extra work. It makes no sense at all," reports Stein.
- Trial lawyers are looking to exploit a "gold mine of personal gain" with "ill-conceived" lawsuits targeting insurers instead of meaningful relief for small businesses.
- "As a former New York state legislator and superintendent of insurance, I was not surprised to see these ill-conceived attempts to hold insurers liable for risks they had not insured. The “deep pockets” of insurers are a tempting target for those who may not have a deep understanding of how risk-transfer works—or in the case of trial lawyers, simply represent a gold mine of personal gain," shares Mills.
For more information and resources, go to fairinsure.org.