A coalition has proposed legislation to help businesses that have limited business interruption coverage as they begin to reopen after COVID-19 shutdowns. (Photo: Shutterstock)
The National Association of Professional Insurance Agents (PIA National) has helped develop a proposal for a new recovery fund for businesses hit hard by the coronavirus pandemic.
The spread of the novel COVID-19 virus has wreaked havoc on ordinary life and devastated businesses. Independent insurance agencies play a particularly important role in delivering insurance products to commercial businesses, large and small, throughout the U.S. During this difficult time, agents have again stepped up, as they always do during a crisis, to offer as much help as they can to their clients.
The business community requires assistance to survive the COVID-19 pandemic and thrive in its aftermath. One typical source of such assistance is business interruption (BI) insurance, which allows businesses to file insurance claims for (typically physical) losses resulting from interruptions to their ordinary course of business. BI coverage is routinely available after a business is forced to close because of physical damage sustained in a hurricane or tornado, for example. However, most BI provisions include exclusions for risks (like the risk of losses from a virus) associated with intangible business losses.
Flawed approach
One troubling suggestion has been proposed in several state legislatures as well as Congress: to require insurers to retroactively recognize financial losses triggered by the coronavirus outbreak as part of their customers' BI coverage. Broadly speaking, these proposals would seek to expand BI insurance provisions to cover losses associated with the closures and shelter-in-place orders arising from COVID-19, even though the policies that include such provisions were not written, sold, or purchased with that understanding by anyone involved. This proposal would essentially override common exclusions for losses due to viruses like COVID-19, and it would eliminate requirements that any loss must be a direct result of damage to or loss of physical property.
Insurance premiums are priced, and policies sold based on the likelihood of the policyholder experiencing a covered loss, as calculated by actuaries and underwriters. Moreover, insurance policies are contracts entered into by business people with extensive background knowledge and experience in the field of insurance. Legislatures at the state or federal level should not have the power to rewrite private contracts to address problems that can be solved with far less intrusive action.
Such proposals would have unanticipated ramifications that would harm both businesses and policyholders in the long term. In the short term, it would create additional financial instability and turmoil, expanding an existing economic struggle for businesses and the American people.
In addition, retroactive BI, as this proposal is known, would leave many small businesses behind. Only about one-third of American small businesses have business interruption coverage. As such, using retroactive BI to solve this problem will not help all businesses struggling because of COVID-19. PIA has instead helped create a real solution for all businesses struggling as a result of COVID-19 that doesn't upend existing insurance contracts and practices.
The Recovery Fund
By contrast, the COVID-19 Recovery Fund is open to all businesses and has been endorsed by over 100 organizations as the most effective way to aid businesses struggling from the consequences of the COVID-19 pandemic.
This extensive coalition has proposed a Recovery Fund that would be housed within the U.S. Department of the Treasury. The Recovery Fund is modeled after the September 11th Victim Compensation Fund, operated by the federal government, and run by a presidential appointee with the authority to enter into contracts with interested businesses to administer the Recovery Fund and facilitate the distribution of federal funds to affected businesses.
The Recovery Fund is meant to protect employees unable to work because of COVID-19, preserve jobs through payroll assistance for closed businesses that continue to retain their employees, and protect businesses from insolvency. By taking these targeted actions now, we ensure that businesses and their employees are positioned to quickly resume their robust participation in the American economy once this crisis passes.
PIA National is working with our coalition partners to ask that Congress include this proposal in the next round of coronavirus legislation. The Recovery Fund is a sensible solution to a serious problem.
Mike Becker (mikebe@pianet.org) is executive vice president and CEO of the National Association of Professional Insurance Agents (PIA National).
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