Updated Small Business COVID-19 Loss Estimates Dwarf Insurance Premiums

April 29, 2020

Small businesses are confronting astoundingly large losses relating to the coronavirus pandemic that dwarf commercial property premiums in unprecedented ways, according to an updated estimate from the American Property Casualty Insurance Association.

With that in mind, the P/C insurance trade group said it is aggressively lobbying for customer relief for its customers on multiple fronts, with support thrown behind a business relief fund and uniform liability and COVID-19 safety standards, among other initiatives. Those ways do not include retroactive business interruption cover for COVID-19 losses, something that many states and civil suits are trying to force even as insurers say the action would bankrupt them.

APCIA estimates that closure losses for small businesses with fewer than 100 employees are now between $255 billion and $431 billion per month. As the association points out, those numbers are far higher than premiums for all relevant commercial property risks in key insurance lines, which comes to an estimated $4.5 billion a month.

Put another way, business continuity losses for small businesses with fewer than 100 employees “are in the general range of 50 to 100 times the monthly relevant commercial property insurance premiums, which include coverage for losses as a result of such perils as fire, wind, hail and water leaks,” APCIA said.

The numbers are just as striking for small businesses with fewer than 500 employees. APCIA estimates point to closure losses in this group at between $393 billion to $668 billion per month. Similarly, premiums for all relevant commercial property risks in key insurance lines are estimated at $4.5 billion per month.

Translated, continuity losses for small businesses with fewer than 500 employees range from 85 times to 150 times the monthly relevant commercial property insurance premiums, including cover for fire, wind, hail and water leak-related losses.

APCIA points out that all of the U.S. home, auto, and business insurers combined have roughly $800 billion to pay all future losses. The combined capital of the top business insurance underwriters is only a fraction of that.

APCIA said its estimates are based on data from the government, Verisk Analytics and S&P Global Market Intelligence, among others.

Government Intervention

This stark reality is why APCIA is pursuing multiple actions beyond business interruption retroactive cover to help troubled insureds, APCIA President and CEO David Sampson said in prepared remarks.

“Insurers understand the urgency of helping businesses and individuals recover from this unprecedented crisis and preventing a larger shut down of the economy,” Sampson said. “Insurers are voluntarily implementing more than $8 billion in new discounts and refunds for policyholders; expanding flexible payment solutions for families, individuals, and businesses; suspending premium billing for small businesses such as restaurants and bars; and pausing cancellation of coverage for motorists due to non-payment and policy expiration.”

Sampson is urging the federal government to step in as a bridge to help cover business interruption costs, noting the P/C insurance industry backs “federal assistance programs that are delivering aid directly to vulnerable business communities, particularly affected small businesses.”

As well, he said, insurers are supporting the COVID-19 Business and Employee Continuity and Recovery Fund, a broad business coalition that would provide immediate financial assistance to impaired businesses to help them survive, reopen, and retain and rehire employees. Sampson said insurers are pushing along with the business community to enact the fund in the next federal COVID-19 relief package.

He said insurers are also lobbying for COVID-19 safety and liability protection standards that would enable business owners to reduce uncertainty about when and how to reopen.

Source: APCIA