Business Interruption Insurance and Coronavirus

Hi all,

Long time reader first time poster here.

I am an underwriting trainee for a fairly large commercial insurance carrier (not the most glamorous job but thrilled to be employed given the circumstances) and wanted to provide some insight on an issue that is currently impacting the financial markets and will become a major story in the coming months.

One of the optional coverages for commercial property policies is business interruption insurance. This coverage is meant to indemnify a business for lost profits after a direct and covered physical loss to their property. For example, if a restaurant were to burn down, the insurance company would cover the damage from the fire, but also pay the restaurant for the profit they are missing out on while the repairs happen.

The reason that this applies to the coronavirus pandemic is because coverage can be triggered by closure by acts of "civil authority." The policies all state that the coverage applies only if the civil authority is closing businesses because of a covered peril. Whether or not the coronavirus will be covered by this is going to be an issue that is battled out in courts over the coming months and years and could drain the surplus of insurance companies.

Some companies also have specific virus exclusions written in to their business interruption policies. These companies should be able to avoid litigation as it is obvious that they are not covering coronavirus. Other companies like Cincinnati Insurance do not have the virus exclusion. These are the companies that are going to be fighting in courts do not have to pay these claims.

At the end of the day, someone is going to have to support these small businesses financially. The insurance industry has $800 billion in surplus, the industry would be completely drained in 2 months, and with hurricane season coming there would be no money left to pay claims.