What do major US business interruption insurance policies cover?


This is particularly concerning given that of all small businesses that have been forced to close due to disaster, 40% have not reopened, a quarter have closed permanently within a year and more than 90% ceased operations during the next. two years — according to a 2020 Federal Emergency Management Agency (FEMA) study found.

Read more: Business interruption is the “framework” of the top 10 global business risks

These figures show how important business interruption insurance is, especially for companies operating in physical space or those with expensive machinery, as any damage or disruption could have a significant impact on their productivity and even jeopardize their survival.

How does business interruption insurance work?

Business interruption insurance, also known as business income insurance, aims to protect companies against financial losses incurred due to interruption of their activities resulting from an insured risk. It pays for operating costs — including potential revenue, rent or mortgage, loan repayments, employee salaries, and taxes — while the business temporarily shuts down. Some policies provide coverage for additional closure-related expenses such as those associated with setting up a temporary location or training staff to use new equipment.

For small and medium-sized businesses, BI coverage is often included in a business owner’s policy, which is a specialized type of insurance that bundles together different coverage options that businesses need, including general liability , commercial property and workers compensation coverage.

Business interruption policies usually involve a waiting period of 48 to 72 hours. This is stated in the policy restoration period, which initially lasts 30 days but can be extended for up to a year.

What are the main causes of business interruption?

A five-year analysis of insurance claims data conducted by AGCS found that fires and explosions were the leading causes of business interruption worldwide, accounting for 30%, or $6.7 million, of all BI losses. Next come storms (21%), water damage (12%), machinery breakdowns (5%) and floods (4%).

In the insurance giant’s latest Risk Barometer survey, however, 52% of respondents said cybercrime, which has been fueled by the recent wave of ransomware attacks, was the trigger for business interruption. most feared, followed by natural disasters (36%), the pandemic outbreak (35%) and transportation and shipping disruptions (30%).

Does business interruption insurance cover losses related to COVID-19?

Whether BI policies should cover pandemic-related losses has been a contentious issue between insurance companies and businesses affected by COVID-19. The insurance industry argues that pandemics cannot be covered due to the scale of their impact.

“Pandemics are an extraordinary disaster that can impact almost any economy in the world, so predicting and managing risk is difficult,” said Sean Kevelighan, CEO of III, in a 2020 statement. Losses caused by a pandemic are excluded from standard business interruption policies because they affect all businesses, all at the same time.”

That hasn’t stopped companies seeking compensation from taking their cases to court, however. To date, the University of Pennsylvania’s Carey Law School COVID-19 Coverage Litigation Tracker has recorded more than 1,900 lawsuits regarding business income coverage, with the majority of lawsuits coming from companies in the food services.

Read more: Business interruption decision is “another brick in the wall” for policyholders

According to the National Association of Insurance Commissioners (NAIC), insurers began excluding viral and bacterial infections from their business interruption policies after the outbreak of severe acute respiratory syndrome (SARS) in 2003, which caused billions of dollars in losses to the industry. Since then, insurers have changed their policy wording to exclude viral and bacterial outbreaks.

What do major US business interruption insurance policies cover?

To find out which insurers nationwide offer the best BI coverage, Investopedia analyzed the policies of 35 insurance companies offering business interruption coverage. The New York-based financial website also considered each provider’s experience in the industry, its financial stability and customer satisfaction. Here are the ones that came out on top. The list is sorted alphabetically.

Investopedia named Chubb the best for claims handling after the insurance giant earned top marks in a recent survey of brokers and risk managers conducted by insurance data provider Advisen. Chubb offers business owner policies for businesses with $30 million in revenue in all 50 states, the District of Columbia and Puerto Rico. BI coverage can be added to the base policy. The insurance giant also earned an above-industry average customer satisfaction score in JD Power’s latest Small Business Insurance Study and an A++ rating from AM Best, indicating superior financial stability.

Read more: How big data is changing insurance to predict and prevent – Chubb

The farm business owner’s policy comes with business interruption coverage, which allows some insureds to claim 100% of their expected income. Named Best for Retail, Farmers’ BOP can be customized to include 20 different endorsements, some tailored to retailers, including equipment failure and exterior signage replacement. The California-based insurer has an above-industry average rating for customer satisfaction and a solid B++ rating for financial stability.

Nationwide offers the broadest range of business interruption coverage of any insurer reviewed, earning the Best Overall title from Investopedia. It provides BI coverage in the event of fire, wind, hail, vandalism or damage caused by vehicles or aircraft. However, losses due to disruptions caused by floods, earthquakes, falling power lines or broken glass, as well as partial closures, are not covered. Nationwide’s BOP is suitable for companies with less than 100 employees and less than $5 million in revenue. It has a solid customer satisfaction score and an A+ financial stability rating.

Read more: National Research: Middle Market Business Owners Rely On Their Insurance Agents

Designed for businesses involved in food service, State Farm’s BI coverage was chosen as best for restaurants. The policy covers loss of income resulting from the backing up of sewers or drains, as well as spoilage or contamination of food. It also protects businesses that have been ordered closed by the government due to food contamination and pays for the resulting advertising expenses. State Farm recorded the highest possible rating for financial stability at A++ and the second highest customer satisfaction score in the JD Power survey.

Hartford’s business interruption policy has several features that outdoor maintenance companies need, earning it the Best Landscaper title from Investopedia. These features include herbicide and pesticide application coverage and snowplow operations insurance. The Hartford BI policy also offers fire, wind and theft coverage, and offers bundled discounts. The insurer holds an A+ rating for financial stability.

Read more: The Hartford: How We Stayed Connected with Our Small Business Clients During COVID-19

Travelers Additional Income and Expense (BIEE) policy provides the protection businesses in the professional services industry need – including cover for the loss of valuable papers and documents, IT equipment, data and media – making it the best choice for the industry. Businesses can also add dependent property coverage — which replaces business income when a major supplier is disrupted — and extended business income coverage to cover the period after business reopens, but customers have not fully returned. The policy covers several perils, including fire, theft, damage caused by vehicles and acts of vandalism.


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