More than 30 million Americans, nearly a fifth of the U.S. labor force, filed for unemployment benefits since mid-March in connection with the COVID-19 pandemic. This is a shocking and scary figure, and the property casualty insurance industry understands the urgency of helping businesses and individuals in Washington, D.C., and across the country recover from this crisis.
The economic hardship imposed on businesses calls out for legislative solutions. But a proposal from the D.C. Council to retroactively rewrite existing business interruption insurance policies to add new risks could have dramatic repercussions for all consumers and businesses. This idea is constitutionally flawed, no matter the size of the businesses targeted. If insurance contracts can be retroactively nullified, no contracts are safe.
Pandemics are uninsured because they are uninsurable events. All commercial insurance sold in the District of Columbia is well-regulated and prior approved by the D.C. Department of Insurance, Securities and Banking. Commercial property insurance policies that include business interruption coverage generally are not intended to cover disease- or pandemic-related losses.
Business interruption insurance covers the financial impact of an interruption to the normal course of business caused by physical damage to a commercial property, such as a fire. Since viruses, like COVID-19, do not cause physical property damage, they are not typically covered under this insurance. In the vast majority of cases, insurers did not price policies to include such coverage, and policyholders did not pay premiums to have this coverage.
Retroactive mandates impose massive liability on the insurance industry for a risk that insurers explicitly did not assume under their contracts. Simply put, if insurance companies are required to cover claims they never sold, it would significantly undermine the ability of insurers to pay other types of claims which are covered – such as wind damage, fire losses and automobile crashes.
The American Property Casualty Insurance Association (APCIA) estimates that closure losses just for D.C. small businesses with fewer than 50 employees could range from $90 million to $447 million per month. These numbers dwarf the premiums for all relevant commercial property risks in the key insurance lines for D.C., which are estimated at $16 million a month.
Insurers are paying — and will continue to pay — every covered insurance claim related to the pandemic, just like we have for other major events. For example, approximately 33 percent of all paid insured losses after 9-11 were from covered business interruption claims.
But only the federal government can be the full bridge for a crisis of today’s proportion. The proof is in the numbers — this pandemic is unprecedented in its scale, reach and economic impact.
Instead, the APCIA is working with a broad coalition of our customers to advance the COVID-19 Business and Employee Continuity and Recovery Fund as an additional tool to keep businesses solvent and employees working.
This federal fund would be an effective, simple and quick way to get financial relief to small business owners within a month of their submitting a one-page online form. It would provide an additional stream of debt-free liquidity to small businesses to retain their employee base.
Industry stability is more important than ever during a time of increased natural catastrophes. In the months ahead, we will face tornados, flooding, wildfires and hurricanes, and the insurance industry will make good on their everyday promises.
That is why the business community has come together to push for a federal-led solution, rather than retroactively changing policyholder contracts to include coverage for COVID-19.
• David Sampson is the president and CEO of the American Property Casualty Insurance Association (APCIA), the trade association representing nearly 60 percent of the U.S. property casualty insurance market.