OPINION: Historic precedent

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Business insurance has been at the backbone of businesses large and small for centuries. In fact, business insurance was available at the end of the 17th century, when London’s growing importance as a center for trade was increasing demand for marine insurance. In the late 1680s, Edward Lloyd opened a coffee house on Tower Street in London — the precursor of Lloyd’s of London — and became the central meeting place for ship owners seeking insurance for a voyage. It soon became a popular meeting place for ship owners, merchants, and ships’ captains. Fire was a constant concern for businesses in the UK as it would be in the U.S. and thus the first fire insurers were formed.

Businesses learned, even then, that if they were forced to close following a disaster, they ran the risk of never opening their doors again. In fact, the Federal Emergency Management Agency reports that 40 percent of businesses do not reopen following a disaster. Another 25 percent fail within one year and over 90 percent of companies fail within two years of being struck by a disaster, according to data from the Small Business Administration.

When retailer Century 21 had to close its doors because of the terrorist attack on Sept. 11, 2001, insurers were the financial first responders, providing relief and economic stability. In the six months Century 21 was shuttered, the insurance industry paid for the renovation of its flagship store in lower Manhattan and for the additional costs Century 21 incurred because of the direct physical damage to the property.

The industry also paid for business interruption to help with operating expenses during the period of restoration including lost net income, any mortgage, rent or lease payments; any loan payments; taxes and employee payroll – they had Century 21’s back. Just as they do for all their policyholders. In 2019, for example, the insurance industry paid out more than $400 billion in claims to its customers.

Unlike the catastrophes of Sept. 11, a global pandemic is largely uninsurable. And while it is understandable that businesses under enormous pressure to sustain themselves are seeking financial relief, it is important to understand that business insurance policies and premiums virtually never cover for losses sustained by viruses. There are two primary reasons.

First, no direct physical damage. A business insurance policy is triggered as the result of properties incurring physical damages, such as fire, hurricanes, or vandalism. The historical legal precedent has been set for decades, and it is being reiterated by recent rulings that are happening nearly daily – viruses do not cause direct physical damage.

And second, industry standard policy language includes a clear exclusion for pandemics. As further clarity to the direct physical damage issue, in the U.S., standard policies provide an exclusion that is clearly presented and prominently presented on the policy declarations page.

The recent announcement of Century 21’s bankruptcy and closing is heartbreaking. However, only the federal government is capable of providing the financial relief that is needed by so many businesses today, as it is the only entity capable. And given the kack of any systematic federal government financial program, the relief is not there, and the unfortunate consequences of politics has set in to delay relief even further.

While pandemics are uninsurable, there is still much happening in the world involving covered catastrophes, and the insurance industry works tirelessly to keep its promises. In 2017 insurers paid out about $15 billion and 2018 about $18 billion for wildfire losses. The 2020 wildfire season for California has technically just barely started, however, it is off to a dreadful start. From Jan. 1 to Sept. 8, there were 41,051 wildfires, compared with 35,386 in the same period in 2019, according to the National Interagency Fire Center. About 4.7 million acres were burned in the 2020 period, compared with 4.2 million acres in 2019. In California alone, wildfires have already burned 2.2 million acres in 2020 — more than any year on record.

Insurers have been there when rioting has destroyed thousands of businesses across the country. With estimates ranging from $500 million to $1 billion, the 2020 civil disorders could be the second-costliest riots in U.S. history.

The 2020 Atlantic hurricane season, which began on June 1 and runs until November 30 so far has produced 20 tropical storms, six hurricanes, and one major hurricane. With 20 named storms, it is the second most active Atlantic hurricane season on record. Already homes and businesses have been severely damaged or destroyed from Hurricane Laura with costs estimated at anywhere from $8 billion to $12 billion.

The federal government remains the only entity with the financial resources to help businesses recover from a systemic event of this magnitude. With the support of the public sector and the innovation of groups like insurers in the private sector, we can come together to work toward recovering from COVID-19’s demise and build a more resilient future so that businesses like Century 21 can endure.

Sean Kevelighan is the CEO of the Insurance Information Institute. The Triple-I serves consumers, media and professionals seeking insurance information.