When the COVID-19 pandemic forced businesses to either shut or limit capacity, making up for lost profits was a challenge. This was especially true because many insurers did not cover business interruption, which is insurance that protects companies from income loss during a crisis event.
Kate Hubben, vice president at NFP in Independence, and Robert Strachan, president of Strachan Novak Insurance Service in Twinsburg, said there were several reasons for this gap in coverage.
Strachan said, going into 2020, most insurance policies had an exclusion in the policies that specifically excluded communicable diseases on the general liability in property insurance.
“There’s a lot of reasons why,” he said, “But back in the early 2000s, when there was SARS, the insurance industry didn’t have exclusions and they paid out quite a bit. They weren’t charging for that exposure. And after that, a lot of them adopted an exclusion for communicable disease. And that, unfortunately, has fallen in the COVID world. So a lot of insurance companies and policies excluded the business interruption coverage for restaurants, hospitality that were shut down.”
Hubben and Strachen said very few companies around the world had this type of insurance. One notable exception was the Wimbledon tennis tournament. After the SARS outbreak in 2003, Wimbeldon bought about $1.9 million per year in pandemic insurance. It paid out about $31.7 million in premiums over that 17-year period and received an insurance payout of about $142 million for 2020’s canceled tournament.
The other coverage that is extremely critical for businesses to have today, according to Hubben, is cyber insurance.
“To be able to do some type of vulnerability and penetration analysis for companies is critical in today’s environment,” she said. “We have a diverse work environment and there are cyber attacks that are getting more sophisticated, more complicated and more intrusive ... a company needs to engage a consultant that can assess and evaluate where there’s possible penetration of a firewall, what the vulnerability is and to quantify what that could mean to the company.”
Hubben added, “If credit card information is attacked, the cyber insurance is responsible to pay for that to all the people that were affected. It will cover all the lawsuits. It will cover all the identity protection, and cyber insurance has to cover the cost of the identity protection probe coverage for all the people that were affected.”
Strachan said the insurance industry, the lobbyists and the government are all talking about this and trying to find a solution for this situation. In the meantime, the government was able to mitigate some of the losses by introducing the Paycheck Protection Program and other assistance to hospitality services and restaurants.
“I liken it to very similar to a policy called ‘terrorism coverage,” Strachan said. “Terrorism was covered on all insurance policies before 9/11. And when 9/11 happened, the insurance industry paid out a lot of money during that situation. And they went to the government and said, ‘We can’t sustain another hit like this.’ And the government and the insurance industry came up with a plan.”
Hubben said about 1,700 lawsuits have been filed against insurance companies to pay business interruption claims because of the coronavirus.
“It’s critical when you hire consultants to get insurance for your business that you are able to trust your consultant and make sure that there’s no gaps in coverage,” she said. “Gaps in coverage is the most important responsibility of your consultants. Because they have to be able to look at it, review it and see where coverage may lapse in that situation.”
Publisher’s note: Kate Hubben is a member of the Cleveland Jewish Publication Board of Directors.