U.S. property and casualty insurers have cast the coronavirus pandemic as an unprecedented event whose massive cost to small businesses they are neither able nor required to cover, Reuters reported. The industry has warned it could cost them $255 billion to $431 billion a month if they are required, as some states are proposing, to compensate firms for income lost and expenses owed due to virus-led shutdowns, an amount it says would make insurers insolvent. The estimate, made by the American Property Casualty Insurance Association (APCIA), a trade group, was recently used by the industry to successfully lobby against state and city lawmakers’ efforts to legislate to make the sector pay. Insurers say business interruption policies only apply when actual physical property damage prevents a business from operating and any attempt to apply cover beyond that, for a pandemic, are unconstitutional. The stance has discouraged some policyholders from filing claims and prompted others to take legal action. A Reuters examination of APCIA’s estimate, however, suggests the possible bill may not be so onerous. The APCIA estimate is an industry worst-case scenario based on all small firms with business interruption coverage being able to claim. It also assumes that between 60% and 90% of businesses with fewer than 100 employees will be impacted by Covid-19. Only about 40 percent of small firms have business interruption coverage, according to the Insurance Information Institute, and most of the policies explicitly exclude pandemics, according to Tyler Leverty and Lawrence Powell, professors who specialize in insurance at the University of Wisconsin and the University of Alabama, respectively. Powell has estimated that insurers could be on the hook for a maximum of $120 billion a month in claims on the basis that half of small firms have business interruption insurance.
