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November 4, 2020

Beyond the pandemic: What your broker should be talking with you about right now

Business interruption. Covid-19. What's covered, what's not and what's next?

Steve Christenson

In October of 2020, a North Carolina state court judge ruled that the business interruption coverage for a group of restaurants covered their losses from the shutdown, finding that “direct physical loss” included “the inability to utilize…something in the real, material or bodily world, resulting from a given cause.”

This decision is reportedly the first to find that shutdowns tied to COVID-19 meet a policy’s “accidental physical loss or accidental physical damage” requirement. A greater number of decisions in favor of insurers on similar questions across federal and state courts have also been widely reported.

With this changeable landscape in mind, your broker should be talking with you about the following issues and helping you create a plan to manage the risk imposed by a widespread catastrophic event such as a pandemic.

Business and insurance companies weren't prepared

COVID-19 exposed a gigantic gap between current insurance policies and the businesses they cover. Businesses closed down by government-ordered mandates looked to their insurance companies for relief. For the most part, that relief never came.

Why? Business interruption policies require physical property damage to trigger coverage, and they either exclude “pandemic” risk coverage altogether, include a small claims payment or sub-limit, usually capped at $1 million, or don’t mention it at all.

When businesses began discovering the reality of what their policies covered — and what they left out — many business leaders felt misled. This has been especially true of small business owners who often don’t work with brokers to help them understand what they may need and how best to secure it.

According to the Washington Post, 100,000 small businesses have already closed permanently as of September, 2020. J.P. Morgan and the U.S. Department of Labor report that more than 55 million American workers have filed for unemployment benefits, and the Yelp web site has found that 55 percent of the businesses that announced closures on Yelp have closed for good.

Forbes reports that only around 30 percent of companies historically carry business interruption insurance. But COVID-19 has interrupted 100 percent of businesses to varying degrees. No doubt, more companies will want business interruption insurance protection in the future. For now, companies might want to consider applying for coverage under all their policies as there may be some ways to recover. 

Why exclude pandemic coverage?

Insurance companies typically don’t cover pandemics, because it’s hard to spread the risk. Weather events, conversely, make sense to cover because a hurricane in Florida doesn’t affect policyholders in Pennsylvania. But pandemics affect everyone in every region. Many insurance professionals argue that the industry can’t cover the risk without the credit and power of the U.S. government.

In response to September 11, 2001, the U.S. Congress passed the Terrorism Risk Insurance Act, or “TRIA,” which helped provide sufficient terrorism insurance to U.S. policyholders by mandating the offering of terrorism insurance coverage while providing a backstop for losses payable through funds provided by the U.S. Secretary of Treasury. It should come as no surprise that, in the wake of COVID-19, there is increasing momentum for the passage of a Pandemic Risk Insurance Act, or “PRIA,” as well.

What is the status of the Pandemic Risk Insurance Act (PRIA)

Fortunately, the TRIA model — which has seen bipartisan support over the last two decades and general support among the insurance industry — provides an efficient framework around which PRIA has been structured.

On March 18, 2020, Maxine Waters formally called for the implementation of PRIA, which would “create a reinsurance program similar to [TRIA] for pandemics, by capping the total insurance losses that insurance companies would face.” A number of initial structures have been suggested, including combining both TRIA and PRIA into one, singular piece of legislation that would provide insureds an opportunity to purchase both TRIA and PRIA coverage at an enhanced premium.

More recently, a model PRIA draft bill (the “PRIA Discussion Draft”) has been circulating through Congress. The PRIA Discussion Draft very closely mirrors TRIA and requires participating insurers to “make available” insurance coverage for a “covered public health emergency,” which includes “any outbreak of infectious ‎disease or pandemic” on terms that do not differ materially from the terms applicable to losses ‎arising from other events.‎

What you and your broker should consider doing right now

Your broker should be talking with you right now about your current coverage and helping you secure the coverage you need. Your broker should be helping advise you on risk management as well as risk mitigation to help you re-open or open more fully as the coronavirus pandemic is eventually brought under control.

Assessing every possible risk
That includes but certainly isn’t limited to coverage for business shutdown due to a viral pathogen causing a widespread pandemic. You should expect business interruption, but you need to look beyond the obvious potential problems such as fire or natural disasters more common to your location.

Analyzing lost income and profits, additional expenses and more
Beyond lost revenue, what does business interruption actually cost you? Will customers come back? Is there any reputation loss? If you’ve lost employees, how much does recruitment and re-training cost?

Workers compensations risk for working-at-home 
There is currently litigation from an employee tripped over a dog when working from home. Consider having a work-at-home agreement to clarify topics like the number of hours to be worked or how confidential information can be accessed and stored or safety protocols to follow.

Reduce property insurance expenses
With more employees working from home, there may be less need for office or retail space. Reducing that footprint saves on rent/mortgages, property taxes, and utilities as well as property insurance.

Cyber-readiness during COVID
Employees working from home has created a new, significant opportunity for cyber criminals. There have been fewer attacks since the beginning of the pandemic, but most have been more devastating. You and your broker should be evaluating security and privacy, employee training, and additional security and audit measures.

Does your broker have access to accurate analytics?

Your broker should be able to access a wide range of data that is recent, accurate and applicable to provide any size client with the ability to:

  • Make more informed decisions
  • Reduce costs and improve cash flow
  • Enhance leverage over insurers
  • Communicate more effectively with Boards and the C-Suite

That analysis should allow you to gain a clear picture of:

  • Risk Bearing Capacity to determine risk tolerance
  • Total Cost of Risk versus your industry peers
  • Hazard Exposure
  • Casualty Loss Projections
  • Collateral Analysis to create a target for each large deductible policy year
  • Workers’ Compensation Performance Assessment
  • Probable Maximum Loss

If your broker isn’t able to provide you with this type of data analytics, maybe you should consider making a change. It’s information you need to keep your business secure and on-track.

Marsh & McLennan Agency will be glad to talk with you about what you can — and should — be doing right now to get through the pandemic and prepare for what’s to come. Just contact a MMA representative to learn more or visit us at